NEW YORK After failing to grab much consumer attention for its own smokeless tobacco products, Altria Group said Monday it would buy the maker of Skoal and Copenhagen for about $10.3 billion.
Altria's 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. Altria owns the Marlboro brand and the nation's biggest cigarette maker, Philip Morris USA.
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 potentially snus, teabag-like pouches that are popular in parts of Europe.
Expanding its presence in the smokeless part of the market has become more urgent for Philip Morris USA after its parent spun off its bigger-earning overseas counterpart, Philip Morris International, in March.
Richmond, Va.-based Altria said Monday it 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 an announcement could come early this week.
The $10.3 billion price tag is based on 147.5 million shares outstanding as of July 31. Altria valued the deal at $11.7 billion, which includes about $1.3 billion in UST debt.
Altria will also get Ste. Michelle Wine Estates, a premium wine business, as part of the deal.
Under the terms of the transaction, UST will be a wholly owned subsidiary of Altria. UST Chief Executive Murray S. Kessler will be named vice chairman of Altria and will oversee the integration.
"We are excited about this strategic and financially attractive acquisition as it will enhance our ability to deliver superior shareholder return," said Altria CEO Michael E. Szymanczyk.
A deal between Altria and UST has been talked about for months and a report Friday said the two were in talks to work out a deal in which Altria would buy UST for more than $10 billion. Altria dismissed the report as "pure speculation."
Altria still expects to earn between $1.63 and $1.67 per share from continuing operations in 2008. Analysts polled by Thomson Reuters expect profit of $1.67 per share for the year.
Altria said it expects the deal to add to its earnings per share within a year after it closes.
The integration between the two companies should generate about $250 million in annual synergies by 2011, the company added, mainly from reduced selling, general and administrative expenses.
The company also said the transaction will likely create more cash flow per year. Altria said it will return a majority of that cash to its shareholders in the form of dividends and share repurchases.
To finance the deal, Altria said its board of directors approved a three-year $4 billion share buyback plan. The new program will replace the previous two-year $7.5 billion repurchase plan. The company said it also received bridge financing totaling $7 billion from Goldman Sachs and J.P. Morgan.Altria also said it will refinance part of its credit facilities. Philip Morris USA Inc., an Altria subsidiary, has guaranteed Altria's debt so that the company will be able to get the highest credit ratings possible for the refinancings, the company said.
AP Business Writer Lauren Shepherd contributed to this report.