Philip Morris International is in talks with Altria to reunite the US and international makers of Marlboro, in a merger to create a tobacco giant with a market value of more than $210bn.
PMI said it was considering an all-stock merger of equals. “There can be no assurance that any agreement or transaction will result from these discussions,” it said.
A deal would recombine companies that split in 2008 when Altria’s exposure to the US market and increasing threat of litigation and regulation became a liability for its international business.
The talks come just over two years since rival British American Tobacco agreed to buy Reynolds American in a $49.4bn deal. At the time, analysts expected PMI to recombine with Altria, given that fears over US litigation of cigarette groups had dissipated.
Tobacco groups are increasing their presence in electronic cigarettes and heated tobacco technology as sales of traditional tobacco products decline. Altria last year agreed to take a 35 percent stake in e-cigarette group Juul Labs for $13bn.
The two companies are investing in e-cigarettes despite intense opposition from regulators in Washington, which have warned that teenage vaping
has become an “epidemic”. According to one federally funded study last year, one in five high school seniors said they had vaped nicotine in the previous month.
Shares in Altria climbed 9.6 percent to $ 51.64, giving it a market value of $ 96.4bn. PMI shares fell 4.9 percent to $73.91 to put its market value at $115bn.
“Altria [ is] more attractive with [its] stake in Juul and Philip Morris could be the ideal international partner for Juul, given Juul’s clear dominance of the US e-cigarette [and] vapour market and international ambitions,” said Bonnie Herzog, an analyst at Wells Fargo.
Uniting the two companies would also allow PMI to capture the full value of its IQOS heated tobacco technology, which Altria is preparing to launch under licence in the US, Ms Herzog noted. Altria’s strong US free cash flow would also allow PMI to “catapult the growth” of IQOS around the world, she said.
Both companies were long shunned by socially conscious investors, but have become unlikely champions of sustainability in recent years, arguing that their investments can help smokers switch to less harmful products and that their longterm goal is to end the market for cigarettes altogether.
“It’s like stopping coal — you can sell your coal plants to another investor or fix the problem yourself,” Huub Savelkouls, chief sustainability officer of PMI, told the Financial Times earlier this year. “The purpose of the company is now to use this product [ IQOS] to make cigarettes obsolete.”
Pamela Kaufman, analyst at Morgan Stanley, noted this week that Altria had materially underperformed the S&P 500 recently, saying that its 48 percent discount to the consumer staples sector indicated that risks to the US cigarette business appeared to be “increasingly priced in”.
ARASH MASSOUDI IN LONDON, JAMES FONTANELLA-KHAN, ERIC PLATT AND ANDREW EDGECLIFFE-JOHNSON IN NEW YORK
