Jakarta, March 14 (Reuters): Philip Morris International Inc said on Monday it is bidding $5 billion to buy Indonesia?s number three tobacco firm, PT Hanjaya Mandala Sampoerna Tbk, to expand in the fifth-largest cigarette market.

Philip Morris, the tobacco arm of the Altria Group, announced a deal to buy a 40 per cent stake and plans to tender for the remaining shares at a 20 per cent premium to their closing price on March 10. Shares of Sampoerna rose 17 per cent in early trading.

Philip Morris, which is paying cash and expects to complete the tender in 90 days, put the total value of the deal at $5.2 billion, including $160 million of debt.

The company, the maker of Marlboro cigarettes, expected the transaction to contribute modestly to Altria?s earnings this year.

?Our investment in Sampoerna is a great opportunity to significantly expand our business in the world?s fifth-largest, and growing cigarette market,? said Andre Calantzopoulos, chief executive of Philip Morris International, in a statement.

Sampoerna, which has almost 20 per cent of the Indonesian market with clove-cigarette brands like Dji Sam Soe and A Mild, had an operating income of $360 million on revenues of $1 billion in 2004, Philip Morris said. Cigarettes made with tobacco and cloves, called kreteks, account for more than 90 per cent of the market.

Indonesia, the fifth-largest tobacco market after China, the United States, Japan and Russia, is a prime growth target for Philip Morris International, said Manny Goldman, a US consumer products industry consultant.

?The Third World environment typically presents a lot of opportunity for growth,? he said.

Growth in the US tobacco industry is slowing because the market is mature as government restrictions against smoking are put into place.

In addition, prices for cigarettes are rising due to higher taxes and payments tobacco companies agreed to make to US states as part of an agreement in a federal and state case against the tobacco industry.