US: Altria Said to Be in Talks With Tobacco Maker UST

Publisher Name: 
The New York Times

Altria Group
is in advanced talks to buy UST, the maker of the popular Skoal and
Copenhagen smokeless tobacco brands, for more than $10 billion, people
with close knowledge of the negotiations said late Thursday. The terms
could not be learned.

The acquisition, which is at
a delicate state and could still fall apart, would be Altria's first
major purchase since the company split in March, spinning off Philip
Morris International to become an independent company focused on the
overseas tobacco business and giving the Altria name to Philip Morris
USA.

People involved in the transaction were planning to work
through the weekend to complete the deal as soon as Monday, these
people said, but they suggested that the release of the news could
speed up the process.

"We don't comment on any speculation
that's out there," said David M. Sylvia, Altria's director of media
affairs. Officials at UST, which is based in Stamford, Conn., did not
return messages.

Speculation about the deal swirled on Thursday
after UST's chief executive, Murray S. Kessler, abruptly withdrew from
an analysts' conference, prompting a surge in the share price and heavy
options trading. By the end of the day, after UST said that there had
been a scheduling conflict, company shares fell back.

Stock in
UST, formerly the United States Tobacco Company, closed down 4 cents,
at $54 a share, while Altria fell 60 cents, to $20.66 a share.

UST also owns Ste. Michelle Wine Estates, which is one of the 10 largest producers of premium wines in the United States.

The company has a current market capitalization of $8 billion and last year earned $520 million on revenue of $1.95 billion.

Analysts have long been bullish on the deal because of Altria's weak
position in the growing smokeless tobacco market and because huge cost
savings are possible by eliminating redundancies between the two
companies. Both have extensive marketing and distribution operations
that cater to essentially the same stores.

"It's very logical," said Christopher Growe, an analyst in St. Louis for Stifel Nicolaus.

Smokeless tobacco is one of the few areas of the tobacco business that
is still growing, Mr. Growe said, adding that it has increased about 7
percent a year over the last four years.

Altria, which is
based in Richmond, Va., and is the nation's largest cigarette maker,
had hoped to use its potent Marlboro brand to create its own successful
smokeless tobacco products. It has introduced Marlboro-brand moist
smokeless tobacco and snus, which are packets filled with tobacco that
are popular in Sweden. Neither product has taken off.

By
splitting Philip Morris USA and Philip Morris International into two
companies, company officials had hoped to allow the international
company to pursue potentially lucrative markets in developing countries
without the worries of potential litigation and legislation in the
United States.

The company's strategy in the United States has
been clear for some time as cigarettes sales have followed decades of
decline. As part of that strategy, Philip Morris USA acquired John
Middleton, a maker of cigars and pipe tobacco, last year.

It has opened a research facility in Richmond to create tobacco products that are lower risk than regular cigarettes.

The House has already approved legislation that would allow the Food and Drug Administration to regulate tobacco products. The measure, which the White House opposes, is expected to be taken up by the Senate this fall.

AMP Section Name:Tobacco
  • 182 Health