Altria may buy snuff maker UST

Altria Group Inc., the maker of Marlboro cigarettes, is in talks to buy UST Inc., the largest U.S. snuff producer, for more than $10 billion, people with knowledge of the negotiations said Friday.

A bid that size would value UST at 26% more than Thursday’s closing price. UST, which produces Skoal and Copenhagen smokeless tobacco, and Altria are in advanced discussions, and an announcement may come next week, said the people, who declined to be identified because the talks weren’t public.

Acquiring UST would give Richmond, Va.-based Altria about 60% of U.S. shipments of snuff, a $3.7-billion industry that’s growing about 7% a year. Altria expects cigarette consumption to decline 3.5% this year, forcing it to play catch-up to UST and Reynolds American Inc.’s Kodiak and Grizzly smokeless brands.

“An acquisition of UST should strengthen Altria’s position in the total tobacco industry and help to offset an accelerated cigarette volume decline,” said Judy Hong, a Goldman Sachs Group Inc. analyst in New York.

UST jumped $13.55, or 25%, to $67.55. Altria gained 29 cents to $20.95.

Tom Fitzgerald, a spokesman for Stamford, Conn.-based UST, said the company wouldn’t respond to merger speculation, which was fueled by UST Chief Executive Murray Kessler’s withdrawal from a Lehman Bros. Holdings Inc. conference in Boston.