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Altria Group Buys UST

Nearly $10 billion deal will give the maker of Marlboro cigarettes access to the smokeless tobacco market with the Skoal and Copenhagen brands.

NEW YORK (AP) -- Altria Group Inc. said Monday it will buy UST Inc. for nearly $10 billion in a deal that will give the maker of Marlboro cigarettes access to the smokeless tobacco market with the Skoal and Copenhagen brands.

Richmond, Va.-based Altria said 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.

The $10 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.

Altria, like all cigarette makers, is facing a slowdown in the U.S. cigarette market with consumption falling by about 3 percent to 4 percent annually. To boost sales and profits, Altria and its competitors have been looking to expand into other categories, like cigars and chewing tobacco.

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.

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