Leaf co-op Offers $25.8 Million for Vector Plant Here

Source from:  From staff and Media General News Service reports  06/10/2004

Prospects for the purchase of the Vector Tobacco plant in Person County by the Flue-Cured Tobacco Cooperative Stabilization Corp. were looking more promising this week amidst press reports that the parties hope to close on the deal next month. Earlier this spring the cooperative of tobacco growers in the five flue-cured tobacco states confirmed interest in buying the facility here that Vector closed last year when it moved its low-nicotine and no-nicotine cigarettes production operations to its facilities in Mebane. This week, David Rice of the Winston-Salem Journal's Raleigh Bureau, who brok the original story, reported that Vector stated in a filing with the Securities and Exchange Commission that it plans to close on the sale of the plant in Person County by July 15. Rice's story distributed by Media General News Service, reported that the co-op has agreed to pay $25.8 million from its reserves to buy the plant, which Stabilization would use to process tobacco and manufacture its own brand of cigarettes. "We can move greater quantities of farmers' tobacco that way. That's the point," Arnold Hamm, the assistant general manager of the cooperative, was quoted. Hamm also confirmed to The Journal, "We have signed an agreement, but we haven't consummated a deal yet." Nonetheless, Hamm voiced the hope that the plant could be processing tobacco reserves as In Roxboro, Glen Newsome, executive director of the Person County Economic Development Commission, confirmed for The Courier-Times that the EDC has been working closely with the parties involved to help facilitate the deal. Newsome declined to speak publicly about details, but he said Tuesday, "We appreciate the substantial progress made thus far on this transaction and look forward to continuing our work with Vector and the tobacco cooperative to bring the project to fruition." Newsome added, "The project would allow us to retain the substantial capital investment made by Vector in our community and create additional employment opportunities for the citizens of Person County." Without detailing their specific involvement, Newsome said area lawmakers have been helpful in the matter. "We are most appreciative of the contributions of Congressman Brad Miller and his staff, state Rep. Gordon Allen and Gene Byrd and Jay Tilley of the N.C. Department of Commerce." While the Roxboro plant would be able to convert 10 million pounds of tobacco into as many as 10 billion cigarettes a year, officials at the cooperative appear more enthused about its ability to process 50 million pounds of leaf to sell to cigarette makers overseas. "What we're looking at is the future," Hamm said. "We've slowly but surely over the last couple of years developed a foreign customer base. This is a way, with or without a tobacco program, to continue to supply that customer base and assure them that their supplier will only be focused on U.S. tobacco." Blake Brown, a professor of agricultural economics at N.C. State University, agreed that the plant's leaf-processing capacity of 50 million pounds is more important than its cigarette-making capacity. "It provides one additional outlet for farmers who may produce more than they've got contracted, or who may not have contracted at all," he said. Peter Daniel, the assistant to the president at N.C. Farm Bureau, had a similar view. "The processing capacity is tremendous. The manufacturing is negligible. They may be able to do some blends for foreign manufacturers," Daniel said. "The future is just wide open." The plant could also change the role of the stabilization cooperative in the industry. The cooperative traditionally has used money on loan from the Commodity Credit Corp. to buy leaf that didn't bring the federal support price, then sell the leaf later. If a buyout of the federal tobacco program passes, Brown said, "then the obvious role for Stabilization is to become more of a marketing cooperative. Their role in the past has been to implement the federal program." The co-op's entry into the leaf-process and cigarette-making businesses also changes its role from that of a supplier to a leaf buyer and a competitor with other companies. "They do become, in essence, a competitor with other leaf dealers," Brown said. "I'm not sure that Philip Morris or the other (cigarette manufacturers) see 10 billion cigarettes as that big a threat." The cooperative currently contracts with such dealers as Standard Commercial and Universal Leaf to process its leaf. Hamm said that the cooperative will pay for the plant out of more than $240 million in reserves that it holds. But no money from the Commodity Credit Corp. will go to buy the plant, he said. While some small cigarette makers have chosen not to join a 1998 settlement between the industry and the states, Hamm said that the cooperative will participate in the settlement. The cigarette plant could produce cigarettes for foreign markets under contracts with other manufacturers, Hamm said. But the plant will not get deals on discounted tobacco that other cigarette makers don't, he said. The U.S. Department of Agriculture "will insist on safeguards to prevent that," he said. "In terms of the loan stocks, whatever price the USDA approves is going to be offered to the entire industry on a first-come, first-served basis. We wouldn't jeopardize that relationship." Ron Bernstein, the president and chief executive of Liggett Vector Brands, said Monday that Vector and the cooperative hope to close on the deal soon. "I certainly applaud the initiative of Flue-Cured Stabilization to pursue initiatives to give their farmers an expanded market for their products," he said. "That's their stated objective, and we're going to do everything in our power to help them meet that objective." Daniel, at Farm Bureau, said that the farm group likes the stabilization co-op's move. "We are extremely pleased that the co-op board has taken this bold step. They are planning a future for tobacco farmers," he said. "We're pleased with this move to allow farmers to have more choices, more marketing options, down the road." Enditem