(Bloomberg) -- Altria Group Inc., fresh off of its first euro bond offering in two decades, turned to the U.S. market to help finance its foray into the booming e-cigarette market.
The tobacco giant sold $11.5 billion of senior unsecured bonds in seven parts, according to people with knowledge of initial discussions. That's good for the second-largest deal of the year behind Anheuser-Busch InBev NV's $15.5 billion sale last month to refinance SABMiller debt.
The company, famous for its Marlboro cigarettes, is diversifying into areas away from its tobacco roots in search of higher-growth businesses. It's paying $12.8 billion for a 35 percent stake in e-cigarette maker Juul Labs Inc., and recently invested $1.8 billion in Canadian pot company Cronos Group Inc. to diversify into the cannabis industry.
Richmond, Virginia-based Altria has been suffering from falling cigarette sales as health-conscious consumers have abandoned tobacco. In the company's latest quarter, it said smoking declines weren't as steep as expected, but it is still sees shipment volumes falling from 3.5 percent to 5 percent in 2019. Altria has indicated that it sees potential to bring Juul, already a success in the U.S., to global markets.
In doing so, it will compete with Philip Morris International's IQOS device, which is already sold in around 43 countries as an alternative to cigarettes. Altria has a deal to sell IQOS in the U.S., if the device gets approval from the U.S. Food and Drug Administration. A separate application from PMI also seeks to market it as a reduced risk as compared to cigarettes.
The deal with Juul has drawn scrutiny from the FDA amid concerns about underage use of vaping products. European investors seemed undeterred, as Altria sold 4.25 billion euros ($4.8 billion) across four tranches on Monday to help fund the transaction, its first euro offering since 1999. The company held calls with investors in both the U.S. and Europe to market the deal last week.
Credit Rally
The longest maturity of the euro offering was 12 years, leaving the dollar component more skewed to bonds further out the curve, Bank of America Corp. strategists led by Hans Mikkelsen said in a report Monday. That matches up well with investor appetite for duration after the Federal Reserve's comments that it was holding off on further rate hikes for now, Mikkelsen said.
The longest portion of Altria's offering, a 40-year security, yields 3.2 percentage points above Treasuries, after initially talk of around 3.45 percentage points, said another person with knowledge of the matter, who asked not to be identified as the details are private.
The Fed's dovish tone, as well as positive economic data and strong corporate earnings, has propelled a rally in credit spreads and risk appetite, sending both the investment-grade and high-yield bond markets to new highs. Issuance has been strong, where investment-grade companies borrowed more than $10 billion on Monday.
Barclays Plc, Citigroup Inc., JPMorgan Chase & Co. and Mizuho Financial Group Inc. managed Altria's bond sale, according to one of the people. A representative for Altria declined to comment.
--With assistance from Allan Lopez, Esteban Duarte, Brian Smith and Natalya Doris.
To contact the reporters on this story: Molly Smith in New York at msmith604@bloomberg.net;Tiffany Kary in New York at tkary@bloomberg.net
To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Allan Lopez, Adam Cataldo
©2019 Bloomberg L.P.
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