Altria in advanced talks to buy UST: source

By Brad Dorfman

CHICAGO (Reuters) - Cigarette company Altria Group Inc (MO.N) is in advanced talks to buy Skoal and Copenhagen smokeless tobacco maker UST Inc UST.N, 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 on Monday or even sooner. The source could not confirm the price or say when a deal might be announced.

UST shares rose 22.6 percent to $66.22 in afternoon trading on the New York Stock Exchange. At $10 billion, the bid would value UST at almost $68 a share, based on shares outstanding as of July 31, a price some analysts think is rich for the company, given its focus on premium brands that face pricing pressure.

Altria spokesman David Sylvia declined to comment on speculation about a deal, as did UST spokesman Tom Fitzgerald.

Buying UST would be a quick way for Altria to expand in the growing smokeless tobacco market as the company looks to branch out from a U.S. cigarette market in steady decline. Altria, whose Philip Morris USA unit makes Marlboro cigarettes, has already tried to expand by test-marketing smokeless tobacco products under the Marlboro name.

"It expands their portfolio," Ken Harris of consumer products consulting firm Cannondale Associates said of a possible deal for UST. "They get into a major smokeless tobacco business."

UST is the industry leader with almost 58 percent of the U.S. smokeless tobacco market in the 26 weeks ended June 14, according to the company's latest earnings report.

But its main business, the premium segment, has been pressured by soaring gasoline prices and the weak U.S. economy.