Altria Group, Inc., parent company of Philip Morris USA, has agreed to acquire UST, the world’s leading producer of moist smokeless tobacco, for $10.4 billion in cash and the assumption of $1.3 billion in debt.

The merger of the two tobacco giants will advance Altria’s goal of owning strong domestic brands across the entire spectrum of tobacco products, including cigarettes, cigars and smokeless tobacco. While offering UST stockholders a premium of 29 percent over the three-month average price, the deal should deliver “an attractive double-digit return” for Altria, states a company press release issued this morning.

 Said Altria CEO Michael E. Szymanczyk: “ 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."

Underpinning the deal is an expectation that the merger will create opportunities to generate approximately $250 million in annual synergies by 2011, primarily through reduced selling, general and administrative and corporate expenses.

Under terms of the agreement, UST will become a wholly owned subsidiary of Altria. UST CEO Murray S. Kessler will be named vice chair of the company, reporting directly to Szymanczyk long enough to “complete the transaction.” Said Kessler: “I look forward to working closely with Mike and his management team to integrate out outstanding brands and employees into the Altria organization.”

Bacon’s bottom line. What’s in it for Richmond? There was no indication in the Altria press release as to where the cuts will occur -- in Richmond, home to extensive Altria and Philip Morris operations, or in Stamford, CN, where UST is headquartered.

Presumably, headquarters functions will move to Richmond. But there is no certainty that sales and administrative functions will, too. On the other hand, the consolidation does represent a tremendous opportunity for Richmond-area economic developers, who in recent years successfully persuaded the Philip Morris USA division headquarters, and then the Altria corporate headquarters, to relocate to Richmond from New York City. Administrative business expenses in the Richmond region are likely to be lower than in the chi-chi New York suburbs of western Connecticut. 

Reading between the lines, it sounds like UST’s Kessler will stick around long enough to help with integrating the two companies, then part company. It will be interesting to see if he stays in Stamford or relocates to Richmond. It could provide a clue as to whether other senior UST executives are willing to make the move South.