Altria Says Lenders Want UST Deal Pushed into 2009

Altria Group said Friday it may hold off on closing its $10.4 billion purchase of UST until early January because its lenders advised that it would be better to close the deal in 2009.

The lenders' request highlights how tight the credit market has become amid the current financial crisis.

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Altria said it has fully committed financing to complete the transaction. JPMorgan Chase and Goldman Sachs previously committed to provide up to $7 billion in bridge loan financing for the deal.

The loan market is essentially frozen right now, with the 3-month Libor rate at its highest level since early January. The rate, which reflects the price banks are paying to secure funding through the end of the year, has jumped in the past couple of weeks amid the pressure in the financial markets.

Altria declined to comment beyond its statement, which said that its lenders advised that it would be "preferable" to close the deal in 2009.

Altria announced its plans to buy UST , the largest U.S. smokeless tobacco maker, on Sept. 8. It did not give an anticipated closing date at that time. The deal must still receive regulatory review, UST shareholder approval and meet certain other conditions.

Under an amended agreement between Altria and UST, the closing date will be no later than Jan. 7, 2009, in the event closing conditions are met before the end of 2008.

Funding More 'Sufficient'

When it announced the deal, Altria said the financing from Goldman Sachs and JP Morgan, along with its existing credit facilities and cash, should be "more than sufficient to fund the transaction."

At that time, Altria said it planned to access the public debt market to refinance some of its credit facilities. Altria's Philip Morris USA unit issued guarantees for Altria's debt to help Altria achieve the highest credit ratings on such refinancings.

Altria also said that if it delays the closing under certain circumstances, the "reverse termination fee" it would pay UST would increase to $300 million from $200 million.

Altria, best known for its Marlboro cigarettes, is looking to expand in a growing market as domestic cigarette sales steadily decline. It is set to pay $69.50 a share in cash and assume about $1.3 billion in debt to acquire UST, whose brands include Copenhagen and Skoal.

Shares of Altria were up 56 cents, or 2.8 percent, at $20.64 after soaring more than 4 percent in afternoon trading as the U.S. House of Representatives voted to pass the bailout bill Friday afternoon.

Shares of UST were up 6 cents, or 0.1 percent, at $65.28 after trading as low as $64.50 and as high as $66.40.

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