ALTRIA GROUP, INC. 
By By Brad Dorfman
The New York Times reported that a deal worth more than $10 billion could be announced as early as Monday, though the timing could be sooner.
The source could not confirm the price or say when a deal might be announced.
UST shares rose 24 percent to $67 in Friday trading on the New York Stock Exchange.
Altria spokesman David Sylvia declined to comment on speculation about a deal. A UST spokesman could not be reached for comment.
U.S. cigarette consumption has fallen steadily since 1981 as more bans on smoking in public areas have been put in place and health messages against cigarettes become more prevalent and aggressive.
Cigarette makers also face marketing limitations from a 1998 tobacco litigation settlement with U.S. states. The restriction of cigarette use has also helped spur growth in the U.S. smokeless tobacco market.
Given the hurdles for cigarette companies, a possible deal between the Altria and UST makes sense, Goldman Sachs analyst Judy Hong said in a research note.
"Strategically, an acquisition of UST should strengthen (Altria's) position in the total tobacco industry and help to offset an accelerated cigarette volume decline," Hong said.
UST is the largest player in the U.S. smokeless tobacco market but has seen its market share pressured as cash-strapped consumers trade down from the company's higher priced brands.
Altria has long been seen as the likely buyer of UST as part of a strategy to expand into other tobacco products. The core market for its Philip Morris USA unit, maker of Marlboro cigarettes, continues to decline.
Speculation over a deal picked up in February as Altria was spinning off its international tobacco arm, Philip Morris International.
Sources told Reuters at the time that an agreement to purchase UST could be reached within months, but that price was the main sticking point. On Thursday, Morningstar analyst Gregg Warren said Altria would need to offer $65 to $70 per share to make the deal attractive to UST shareholders.
PRICE CUTS?
Some analysts think UST, which also markets premium wines, will have to cut prices in order to compete with lower-priced products. So far, UST has used only targeted promotions in certain markets to protect its market share.
One analyst questioned if Altria would be able to afford to change prices if it ends up buying UST.
"UST is exposed to the growing smokeless market, but its exposure is to the nongrowing premium sector," said Citigroup Global Markets analyst Adam Spielman in a note. "The price gaps are huge; we doubt (Altria) will be able to afford to change this short-term."
Altria rival Reynolds American Inc
Altria itself has been test-marketing some smokeless tobacco products, while also branching out into cigars with the acquisition of John Middleton Inc, announced last November.
UST Chief Executive Murray Kessler and another UST executive pulled out of a planned presentation at a Lehman Brothers conference on Thursday, prompting speculation that a deal for the company was imminent and sparking a rally in UST shares.
UST spokesman Tom Fitzgerald told Reuters that the cancellation was due to a scheduling conflict, though he declined to say what the conflict was. UST had confirmed its intention to attend the conference two weeks ago.
Altria shares were up 36 cents at $21.02 in Friday New York Stock Exchange trading. The shares have traded in a range of $24.55 and $19.85 in the past 52 weeks.
(Reporting by Brad Dorfman; Additional reporting by Aarthi Sivaraman and Sarah Coffey in New York and Saumyadeb Chakrabarty in Bangalore; Editing by Quentin Bryar. John Wallace, Dave Zimmerman)
