NEW YORK -- Altria Group Inc. is in advanced talks to buy Skoal and Copenhagen smokeless tobacco maker UST Inc., a source familiar with the discussions told Reuters on Friday. The New York Times reported that a deal worth more than $10 billion could be announced as early as today, if not sooner. The source could not confirm the price or say when a deal might be announced.
UST shares rose 20% in pre-market trading to $65 from a close of $54 on Thursday. Altria spokesperson David Sylvia declined to comment on speculation about a deal. A UST spokesperson could not be reached for comment, [image-nocss] said Reuters.
Greenwich, Conn.-based UST is the largest player in the U.S. smokeless tobacco market, but has seen its market share pressured as cash-strapped consumers trade down from the company's higher priced brands, said Reuters.
Altria has long been seen as the likely buyer of UST as part of a strategy to expand into other tobacco products; the core market for its Philip Morris USA unit, maker of Marlboro cigarettes, continues to decline, said the report.
Speculation over a deal picked up in February as Altria was spinning off its international tobacco arm, Philip Morris International. Sources told Reuters at the time that an agreement to purchase UST could be reached within months, but that price was the main sticking point. On Thursday, Morningstar analyst Gregg Warren said Altria would need to offer $65 to $70 per share to make the deal attractive to UST shareholders.
U.S. cigarette consumption has fallen steadily since 1981 as more bans on smoking in public areas are put in place, health messages against cigarettes become more prevalent and cigarette makers face marketing limitations from a 1998 tobacco litigation settlement with the states. The restriction of cigarette use has also helped spur growth in the U.S. smokeless tobacco market.
But some analysts think UST will have to cut its prices eventually in order to compete with lower-priced products. So far, UST has used only targeted promotions in certain markets to protect its market share.
Altria rival Reynolds American Inc. bought Grizzly smokeless tobacco maker Conwood in 2006 and has also tested smokeless tobacco products under the Camel brand, adding to the competitive pressure on UST.
New York City-based Altria itself has been test-marketing some smokeless tobacco products, while also branching out into cigars with the acquisition of John Middleton Inc, announced last November.
UST CEO Murray Kessler and another UST executive pulled out of a planned presentation at a Lehman Brothers conference on Thursday, prompting speculation that a deal for the company could be imminent and sparking a rally in UST shares, Reuters said. Company spokesperson Tom Fitzgerald told the news agency that the cancellation was due to a scheduling conflict, though he declined to say what the conflict was. UST had confirmed its intention to attend the conference two weeks ago.
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