Tobacco Industry: CT Urges UST to remain in state

Rell urges UST to remain in state

August 24, 2006

Governor M. Jodi Rell met with UST Inc. officials yesterday in Greenwich to explore options and incentives to help keep the company’s headquarters and 400 jobs in Connecticut, her office said late yesterday.

“Preserving and creating jobs in Connecticut are absolute top priorities for me,” said Rell in a statement released after the visit, adding that she “wanted to meet face-to-face with company management to underscore my commitment to keeping UST as a partner in Connecticut’s economy.”

“I want make it clear that the state will do whatever we can to help UST stay — and hopefully grow — in Connecticut for years to come,” Rell said. She appointed Holly Campo de la Vera, executive director of the Office of Business and Industry Development at the Department of Economic and Community Development, to work directly with the company.

UST, the largest U.S. snuff maker, has put 60 teams to work on spending reductions that will start this quarter, company spokesman Mark Rozelle said.

Steps may include moving the corporate offices, as reported last week by The Advocate, along with job cuts and improving efficiencies at manufacturing facilities in Franklin Park, Ill., and Nashville, Tenn, he said.

UST Chief Operating Officer Murray Kessler said the company will use the anticipated $100 million in spending reductions on marketing and discounts as Philip Morris USA and R.J. Reynolds Tobacco Co. expand into smokeless tobacco.

The maker of Skoal and Copenhagen smokeless tobacco is responding to investor concern that competition from the two biggest U.S. cigarette companies will cut into UST’s two-thirds share of the smokeless category.

“We’ve been incredibly aggressive, taking a hard look at our cost structure,” Kessler said. “Shareholders are looking for consistent, long-term sustainable growth. They are not looking for a big pop in one year versus another year.”

UST’s focus is on increasing its market share to reward shareholders, not being bought by Philip Morris USA or another tobacco company, Kessler said. The company already is spending more than $90 million this year on marketing, coupons and other discounts.

“Every time you see somebody standing outside in the rain smoking a cigarette, that’s opportunity for UST,” Kessler said.

However, the company is seen by some investors as a possible takeover target for a large cigarette company looking to diversify its product line.

Philip Morris, the maker of Marlboro cigarettes, is testing spitless tobacco pouches in Indianapolis, and Reynolds is selling a similar product in Portland, Ore., and Austin, Texas. UST started tests of Skoal Dry smokeless pouches last month in Austin and Louisville, Ky.

In May, Reynolds, the maker of Camel and Kool cigarettes, acquired Conwood Co., the second-largest U.S. snuff maker, for $3.5 billion from Chicago’s Pritzker family.

The purchase gives Winston-Salem, N.C.-based Reynolds a quarter of the U.S. smokeless market and may lead to a UST takeover, according to some investors.

“Reynolds buying Conwood changes the dynamics in the industry,” said Matthew Kaufler, who helps manage $2.5 billion at Rochester, N.Y.-based Clover Capital Management Inc., which bought 417,000 UST shares in April. “You’ve got two companies with deep pockets encroaching on UST’s turf.”

“I want to make sure that all options are explored and all avenues are exhausted before UST makes its final decision, and I’m encouraged that the company has agreed to work with us in that regard,” Rell said. “We will ensure that UST is aware of all the state programs and services available to them.

Rell cited UST’s 400 Greenwich employees, its contribution to the state economy, and its history of giving back to the community as reasons why it is important that UST stay.

“They are a valued corporate citizen, one we hope to keep here,” Rell said in the statement.
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