September 8, 2008 5:40 PM

Five Firms Light Up with $11.7 Billion Tobacco Merger

Posted by Brian Baxter

Apparently the Marlboro Man also doesn't mind a pinch between his cheek and gum.

Richmond-based Altria, the largest cigarette maker in the U.S. through its Philip Morris USA subsidiary, announced Monday that it would acquire Stamford, Conn.-based UST, formerly the U.S. Tobacco Company, for $10.4 billion in cash and $1.3 billion in debt. UST is a maker of smokeless tobacco products.

Five Am Law 100 firms--Hunton & Williams, Arnold & Porter, Sutherland Asbill & Brennan, Skadden, Arps, Slate, Meagher & Flom, and Sullivan & Cromwell--advised on the mammoth tobacco transaction. But as opposed to how things might have played out 40 years ago, there were no tense negotiations in smoke-filled back rooms.

"This is just a big move by a major strategic," says Jerry Whitson, head of the business practice group at Hunton, which is providing corporate counsel to Altria on the deal.

Cigarette sales have declined precipitously in recent years, and Altria, which controls nearly half of the U.S. cigarette market, was keen to move into the realm of smokeless tobacco, where sales continue to rise. UST is primarily a holding company for United States Smokeless Tobacco, which makes and distributes chewing tobacco and snuff brands such as Copenhagen and Skoal. (UST also owns suburban Seattle-based Ste. Michelle Wine Estates, one of the largest vintners in the U.S. through its Stag's Leap and Conn Creek labels.)

New York-based Skadden M&A partners Peter Atkins and David Friedman and antitrust partner Clifford Aronson are serving as lead counsel to UST on the deal. Last year Aronson helped Wild Oats overcome regulatory hurdles in its $671 million acquisition by Whole Foods. Executive compensation and employee benefits partner Stuart Alperin and counsel Berit Freeman round out the Skadden deal team. The firm has done corporate work for UST in the past.

Joseph Frumkin, managing partner of the M&A group at New York's Sullivan & Cromwell, is advising UST's board of directors on the acquisition along with M&A partner Keith Pagnani, antitrust chair Yvonne Quinn, and associates Julie Guaragna, Melissa Sawyer, Gregory Shih, and Annie Yan. Frumkin was named a Dealmaker of the Year by The American Lawyer in April 2005 for his work on the $41 billion Cingular-AT&T Wireless merger.

Altria turned to a host of longtime outside counsel to help it finalize its acquisition for UST.

Along with Whitson, a Dealmaker of the Year in April 2002 for his work on Kraft Foods's $9.5 billion IPO, M&A partners Dee Ann Dorsey, Susan Failla, and Louanna Heuhsen from Richmond's Hunton are providing corporate counsel to Altria. Others on the Hunton transaction team include international M&A counsel Olga Khvatskaya, employee benefits counsel Leslie Hansen, and associates Amos Barclay, Alena Brenner, and Jane Hopwood.

Hunton previously advised the tobacco giant on its $62 billion spin-off of Kraft Foods in April 2007 and on its $113 billion spinoff of Philip Morris International late last year. Donald Fried, a former associate general counsel at Philip Morris from 1988 to 1991, currently serves as senior counsel with the firm in its New York office.

Tax counsel was provided by partners Clifford Muller and Reginald Clark and counsel David Roby, Jr., from Sutherland. The firm also served as tax counsel on Altria's spin-off of Philip Morris International and its $2.9 billion acquisition of Pennsylvania-based cigar manufacturer John Middleton in November 2007.

Washington, D.C.'s Arnold & Porter, which also has done work for Altria in the past, is providing regulatory counsel to the company through antitrust partners Deborah Feinstein and Douglas Wald, and associate Julie Goshorn. Feinstein previously advised Philip Morris on its $18.9 billion buyout of Parsippany, N.J.-based Nabisco Group Holdings--maker of Oreos, Ritz, and Chips Ahoy!--in June 2000. (The deal created the world's largest food company by merging Nabisco's operations with Kraft Foods, which Philip Morris soon spun off with the help of Hunton's Whitson.) Wald previously represented the company in an antitrust class action challenging a nationwide tobacco settlement, the dismissal of which a court affirmed on appeal.

The New York Times reports that market insiders suspect that the latest flurry of M&A activity by Altria is an effort to strengthen itself against its primary competitor: Winston-Salem, N.C.-based Reynolds American, the second-largest cigarette maker in the U.S., whose brands include Camel and Salem. Reynolds bought Memphis-based Conwood Sales Co.--maker of the Grizzly and Hawken brands and the second-largest U.S. manufacturer of smokeless tobacco products--in April 2006 for $3.5 billion.

Lawyers involved with the acquisition say they do not foresee any major regulatory issues that would preclude the deal's approval.

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