Cigarette maker Philip Morris is bidding to buy a majority stake in Indonesia's third-largest tobacco company, PT Hanjaya Mandala Sampoerna.
Clove cigarettes, including Dji Sam Soe and A Mild, are hugely popular
The move would give the US business the opportunity to expand sales to the world's fifth-largest cigarette market.
The firm wants to buy a 40% stake in Sampoerna and the rest of its shares in the market for 48.7bn rupiahs ($5.2m).
The deal is set to be the biggest foreign takeover of an Indonesian business yet.
The deal, which Philip Morris hopes to complete within 90 days, could be a sign of increased business confidence in Indonesia.
The country - which has had a new government for five months - has had difficulty attracting high levels of foreign investment in the past due to fears of corruption and political instability.
Philip Morris International, the international arm of Philip Morris, plans to buy the remaining shares for 10,600 rupiah a share ($1.13), 20% above their closing price last week.
Tobacco companies are keen to establish a presence in developing markets where health education and smoking regulations are not as prevalent.
"The Third World environment typically presents a lot of opportunity for growth," said Manny Goldman, a US consumer products industry consultant.
A large percentage of Indonesian men already smoke: 62% of men smoked in 2001, compared with 53% in 1995.
However, Indonesian smoking tastes are different to the West.
More than 90% of the cigarettes sold contain a mixture of cloves and tobacco and are known as kreteks.
Sampoerna has nearly 20% of the Indonesian cigarette market with clove brands like Dji Sam Soe and A Mild.
Indonesians smoke more than 200 billion kreteks a year, despite their low incomes.
Shares in Sampoerna rose 16.4% to 10,300 rupiahs on news of the takeover, taking the Indonesian stock market to a record high of 1,118.783.
Philip Morris is part of US conglomerate, the Altria Group.