Looking at the debt policy, UST is capable to pay its debt obligations, including a thriving profit margin, roa and equity. Looking at the key financial ratios for tobacco companies 1997-98 (booklet page 54, exhibit 6), I believe the firm can go with AA or A corporate bond rating. The firm has been recognized of being a conservative debt policy, and the business is able to create excessive returns with low financial leverage. Although, with the loss of the market share and being the bad guy in legislation it increases exposure, UST must change its capital structure to take advantage from interest tax shield and maximize the firm value. Doing the move (recapitalization) shareholders would appreciate this because the company stock price will increase from repurchasing outstanding stocks (Exhibit 3). On the other note, this makes the company more risky because there can be a hostile takeover while in the process of recapitalization; taking out such large borrow of 1 billion debt makes stocks very risky. …show more content…
Since the firm controls the majority of the moist tobacco market; their ability to increase their price without scarring off their customers (not price sensitive to UST products) really shows how resilient the firm is. However, the firm is facing a threat of price-value competitors who are in the same business or new entering in the market and they have manage charging a low pricing on their products. Analyst felt that UST was too slow in responding to the threat of value competitors. You can see why this issue can become even more of a