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Altria Fires Up Cigar Business

Altria Group (MO - Get Report) is puffing up its tobacco business to include cigars.

The owner of the Philip Morris tobacco behemoth said Thursday that it agreed to buy John Middleton, a maker of machine-made cigars, for $2.9 billion in cash.

John Middleton makes cigars under the Black & Mild name, the second-biggest-selling cigar brand in the U.S., according to Altria. The company's operating revenue is expected to reach $360 million in 2007.

The purchase comes as Altria is preparing to spin off its international tobacco division in hopes that it will be able to grow more quickly without the legal battles and regulatory headaches faced in the U.S. over cigarettes. Altria, whose cigarette brands include Parliament and Marlboro, said the cigar deal will enhance its long-term growth in the U.S. market.

"The acquisition is both strategically compelling and financially attractive," said Michael Szymanczyk, chairman and CEO of Philip Morris USA. "It fits squarely with our announced strategy to grow our U.S. tobacco business beyond cigarettes and complements our recent initiatives in the smokeless category."

John Middleton, based in Pennsylvania, is currently owned by privately held Bradford Holdings. The deal is expected to close by the end of the year.

Shares of Altria recently were down 7 cents to $72.86.

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