Altria Acquires UST

Altria Group Inc. and UST Inc. have entered into a definitive agreement in which Altria is acquiring all outstanding shares of UST, the world’s leading moist smokeless tobacco manufacturer, the companies said.

The transaction is valued at approximately $11.7 billion, which includes the assumption of approximately $1.3 billion of debt. UST shareholders will receive $69.50 in cash for each share of common stock held.

"The combination of Altria and UST creates the premier tobacco company in the United States with leading brands in cigarettes, smokeless tobacco and machine-made large cigars," said Michael E. Szymanczyk, Altria’s chairman and CEO. "We are excited about this strategic and financially attractive acquisition as it will enhance our ability to deliver superior shareholder return that is expected to exceed our 12% goal. This transaction is consistent with our growth strategy of making disciplined investments in adjacent categories. UST provides Altria with the leading premium brands, Copenhagen and Skoal, in the highly profitable MST category. We will also acquire Ste. Michelle Wine Estates, a premium wine business, as part of the transaction."

"This all cash transaction delivers compelling value to UST’s shareholders," said Murray S. Kessler, chairman and CEO of UST. "UST’s growth strategy will clearly be enhanced by Altria’s resources and infrastructure."

The transaction is subject to UST shareholder approval and customary regulatory approvals.

The UST acquisition is expected to grow and diversify Altria’s operating income and net revenues. For the first half of 2008, reported operating income for Altria and UST was $2.6 billion and $451 million, respectively. If Altria had owned UST since the beginning of 2008, Altria’s first half of 2008 net revenues would have increased 10.3% to $10.4 billion.

Altria generates approximately $3.5 billion of operating cash flow per year. After the acquisition Altria expects to generate more than $4 billion of operating cash flow per year.

Altria has received new committed bridge financing totaling $7 billion from Goldman Sachs & Co. and J. P. Morgan, which together with its existing credit facilities and cash, is expected to be more than sufficient to fund the transaction. Altria intends to access the public-debt market to refinance a portion of its credit facilities. To help Altria achieve the highest credit ratings on such refinancing, Philip Morris USA Inc., a wholly owned subsidiary of Altria, has issued guarantees for Altria’s debt.

Under the terms of the agreement, UST will become a wholly owned subsidiary of Altria.

Murray S. Kessler will be named vice chair of Altria, reporting directly to Michael E. Szymanczyk, and will oversee the integration.

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