British American Tobacco (BAT) is to buy the tobacco interests of Denmark’s Skandinavisk Tobakskompagni (ST) in a £1.15 billion deal that is intended to cement its position in Northern Europe and in the “snus” market.

ST, the owner of Prinz cigarettes, has a more than 60 per cent share of cigarette sales in Scandinavia and earned profits of £183 million last year. The deal adds another 30 billion cigarettes to annual sales at BAT, which is the world’s second-largest tobacco company.

It also gives BAT, owner of Lucky Strike, Pall Mall and Kent, a stronger position in snus – a form of smokeless tobacco that several companies hope can be developed as a “healthier” alternative to cigarettes that also gets around smoking bans.

Snus, which is sucked from a tiny teabag tucked between the gum and lip, has been popular in Sweden for hundreds of years and is also legal in Norway. However, since 1992 it has been banned in the rest of the European Union despite an intense lobbying effort by tobacco companies.

Paul Adams, chief executive of BAT, said: “We are buying market share [in snus], but more importantly we are buying expertise.”

Fiedler & Lundgren, ST’s snus-making subsidiary, which operates at a slight loss, sold 16 million cans of snus last year. It has a 6 per cent share of the market in Sweden and 4 per cent in Norway with brands such as Granit, Mocca and Metropol, although it trails well behind the market leader Swedish Match.

BAT sells its own snus brands in Scandinavia and has also test-marketed brands such as Lucky Strike and Peter Stuyvesant, in South Africa and in Ottawa and Edmonton in Canada.

BAT, which already owns one third of ST shares, sold 1.2 million cans of snus last year, all of which were manufactured by ST under contract.

The European Commission is reviewing the EU’s tobacco legislation, but it made clear last autumn that any relaxation of the ban was unlikely.

BAT will exchange its existing 32.3 per cent stake for £904 million and will then pay the £1.15 billion price tag in cash.

The deal would create cost savings of about £60 million by 2011, BAT said.

The acquisition comes on top of BAT’s $1.72 billion (£864 million) acquisition of Tekel, the privatised Turkish state tobacco group, which was announced last week.

BAT also reported an 11 per cent rise in underlying 2007 earnings yesterday to £2.9 billion.

BAT announced a five-year cost-cutting plan that could save £800 million annually by 2012. The results were at the top end of forecasts.

Jan du Plessis, the chairman, said: “At a time of considerable economic and financial uncertainty around the world, British American Tobacco is in good shape.”

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