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Debt Policy at UST, Inc.

Mark L. Mitchell
CNH Partners

Abstract: SUBJECT AREAS: Capital structure; interest tax shields. CASE SETTING: 1998; smokeless tobacco producer.

UST Inc., the dominant producer of moist smokeless tobacco, is planning a major change in capital structure via a debt-financed stock repurchase program. UST had been widely known for its conservative debt policy and high dividend payout. The proposed change in capital structure not only reverses a longstanding conservative financial policy, but also does so during a time period in which the business environment has become increasingly uncertain due to recent litigation and legislation developments. The case provides the opportunity for students to analyze the value implications of a major change in capital structure policy: (1) introduction to capital structure policy, (2) calculate tax shields of debt financing, and (3) assess business and financial risks associated with a firm undergoing a recapitalization. Case and Teaching Paper Series
Date posted: November 25, 2000 Suggested Citation
Mitchell, Mark L., Debt Policy at UST, Inc. (November 3, 2000). Harvard Business School Case No: 9-200-069. Available at SSRN: http://ssrn.com/abstract=251434

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Mark L. Mitchell (Contact Author) CNH Partners ( email ) Two Greenwich Plaza 1st Floor Greenwich, CT 06830 United States (203) 742-3001 (Phone)