Based on USTs rate of return being higher than salute of capital and the incremental increase of $380 million, they should undertake the $1 billion recapitalization. They exit not have a problem making the stake payment and volition see an increase in dividends. This is under the assumption UST is able to obtain at least a BBB credit rating or greater. In addition,
External issues that may affect or hurt the USTs position atomic number 18:
Decrease in innovation of products
Decrease in market place consider ascribable to competitions drop in prices
A drop in demand by consumers due to unstable economy
Increase in the legislation regulating the expend of smokeless tobacco
Legal judgments against UST that would divert money allocated for interest payment
UST has compensable uninterrupted dividends since 1912. Will the recapitalization hamper future dividend payments?
Based on short-term analysis the recapitalization will not hamper dividend payments in the near future and will actually come about to improvements. aft(prenominal) recapitalization UST will safely have sufficient income to cover the cost of interest payments and still payout regular dividends without a problem. The short-term do of the recapitalization are positive for shareholders.
Results will prove dividend per share will increase from $1.62 to $1.86 with an A rating. Even at a BBB rating, the dividend per share is set to increase to $1.86. Earnings per share will besides go up in either case.
Long-term effect of the recapitalization are less clear. Unfortunately, UST does not have a heavy international presence and the tobacco market in the coupled States continues to be plagued by lawsuits, strong regulation and decreasing volumes. The increase debt will bring increased stockholder risk, but at the same time USTs history of stability is encouraging. The concentration of halt due to the voting power concentration post-recapitalization can lead to changes...If you want to get a full essay, order it on our website: Orderessay
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