Altria aims for first in smokeless deal

The owner of Marlboro completed a $10 billion merger.

NEW YORK (AP) — 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 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. 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, teabag-like 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 after its parent spun off its bigger-earning overseas counterpart, Philip Morris International, in March.

Altria CEO Michael Szymanczyk said Monday Altria began seriously thinking about a UST deal after the spin-off, and he called UST CEO Murray Kessler at the end of May to revive discussions they’d been having on-and-off. Szymanczyk also said the company would continue to pursue growth of Marlboro brand smokeless products.

“This doesn’t remove the opportunity for smokeless from an organic point of view,” he said. “That is something we continue to work on.”

The company has been conducting market tests of Marlboro moist smokeless tobacco in the Atlanta metropolitan area and Marlboro snus in Indianapolis and Dallas-Fort Worth since January. It also bought cigar maker John Middleton Inc. in December 2007.