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Lorillard Prices $500M Notes

Zacks Equity Research

Cigarette manufacturer Lorillard Inc. (LO) has recently announced the pricing of senior notes aggregating $500 million. These notes carry an interest rate of 3.75% and will mature in 2023. At the end of Mar 31, Lorillard had $3.1 billion of debt.

The offering involves a consortium of renowned banks acting as the joint book-running managers. These include Barclays Capital Inc – a unit of Barclays Plc (BCS), Goldman Sachs & Co. – a subsidiary of The Goldman Sachs Group Inc (GS), Wells Fargo Securities, LLC – a unit of Wells Fargo & Company (WFC), J.P. Morgan Securities LLC – a wing of JPMorgan Chase & Co. (JPM), Fifth Third Securities, Inc – a unit of Fifth Third Bancorp (FITB) and RBS Securities Inc – an arm of The Royal Bank of Scotland Group plc (RBS).

Lorillard stated that the sale of notes will close on May 20. Further, the net proceeds from the note offering will be used for general corporate purposes, share repurchases, redemption of securities, acquisitions, working capital needs and capital expenditures.

Lorillard is one of the most efficient and aggressive companies in the tobacco industry that regularly increases shareholder return in the form of dividends and share repurchase activities. The company has rewarded its shareholders and increased dividend payment every year.

In the recently reported first quarter 2013, the company repurchased approximately 1 million shares at a cost of $40 million under the $500 million share repurchase program announced in Mar 2013. The company has $460 million worth of shares remaining in its share buyback program. Lorillard also paid a quarterly dividend of 55 cents in March, an increase of 6.5% from the prior dividend. Over the long-term, Lorillard expects to return approximately 70-75% of its earnings to shareholders in the form of dividends.

This note offering will enable the company to attain financial flexibility and position Lorillard favorably to pursue investment opportunities and acquisitions, which will go a long way toward enhancing its top-line growth. Lorillard holds a Zacks Rank #3 (Hold).

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