- The Washington Times - Tuesday, September 9, 2008

NEW YORK | Altria, the U.S. leader in cigarettes, wants to be No. 1 in smokeless products, too.

The owner of the nation’s biggest cigarette seller said Monday that it will buy UST, the maker of Skoal and Copenhagen, in a $10.4 billion deal that is part of the wider consolidation of the global tobacco industry.

Observers say Lorillard, which was spun off from Loews Corp. in June, could be next on the list of potential targets.

“It’s going to put pressure on everybody else to consolidate,” said Sachin Shah, an analyst with iCap Equities. Mr. Shah said tobacco leaf producer Universal Corp. and Vector Group Ltd. could also be potential targets.

Altria owns the Marlboro brand and the nation’s biggest cigarette maker, Philip Morris USA. It has been test marketing Marlboro brand smokeless products, but analysts say the results have been disappointing so far. Its acquisition of UST will give it a strong position in smokeless tobacco, a segment of the U.S. market that is growing as cigarettes decline.

American smokers are buying fewer cigarettes as smoking bans and health concerns dampen demand by 3 percent to 4 percent a year. That has forced tobacco companies to look for sales growth from alternatives such as cigars, chewing tobacco and snus, teabaglike pouches that are popular in parts of Europe. Smokeless sales are growing by about 5 percent to 6 percent a year.

Expanding its presence in the smokeless part of the market has become more urgent for Philip Morris USA since its parent spun off its bigger-earning overseas counterpart, Philip Morris International, in March.

Worldwide, the tobacco industry has been consolidating. Imperial Tobacco Group PLC bought Franco-Spanish company Altadis in January; Rothmans Inc., the Canadian cigarette company, is being bought by former Altria subsidiary Philip Morris International; and Reynolds American Inc. bought smokeless company Conwood Co. in 2006.

Under the deal announced Monday, Richmond-based Altria will buy Stamford, Conn.-based UST for $69.50 per share in cash, a 3 percent premium to UST’s closing price Friday of $67.55. That comes on top of a 25 percent rise in UST’s shares on Friday as the market anticipated a deal. UST shares rose $1.35, or 2 percent, to $68.90 on Monday, while Altria rose 2 cents to $20.97.

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