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Philip Morris And Altria In Merger Talks As Marlboro Fades And E-cigs Light Up

By Donna Ahern
Philip Morris And Altria In Merger Talks As Marlboro Fades And E-cigs Light Up

Marlboro maker Philip Morris International Inc and Altria Group Inc are in talks for an all-stock merger, potentially reuniting the tobacco giants after more than a decade in a deal aimed at dominating the fast-growing e-cigarette market.

A merger of the two would create a company with a market value of more than $200 billion (€180.3 billion).

Analysts have long speculated that the companies would merge, given mounting pressure from falling cigarette sales and the need to invest in alternative revenue streams.

Industry-wide cigarette sales volumes tumbled 4.5% on an adjusted basis in 2018, according to analysts at Cowen.

E-Cigarette Market


In contrast, the e-cigarette market was worth about $11 billion (€9.91 billion) in 2018 and is expected to grow at more than 8% annually over the next five years, according to research firm Mordor Intelligence.

In April, Phillip Morris won approval to sell a heated tobacco product called IQOS in the United States, a major victory for a company looking to move beyond traditional cigarettes.

"The potential to reunite the companies has been often discussed, but we did not believe this would occur given the heavy regulatory burden in the US market and its weakening growth profile," said Stifel analyst Christopher Growe.

In noting that the FDA's approval of iQOS may have changed the equation, he added: "But we do not believe that was sufficient to reconsider a combination of these companies."

Unlike combustible cigarettes, the IQOS devices heat tobacco-filled sticks wrapped in paper, generating an aerosol that contains nicotine. They are different from e-cigarettes such as the popular Juul device, which vaporises a nicotine-filled liquid.


Altria, which owns a 35% stake in Juul Labs Inc, already markets IQOS as part of a licensing agreement with Philip Morris.

An Ideal Partner

In a note to clients on Monday, Wells Fargo analyst Bonnie Herzog said Juul will have an ideal partner for its international expansion in Philip Morris.

Herzog added that Philip Morris could speed up the growth of IQOS in the United States if it had full control over sales and distribution.

Philip Morris has annual revenue of nearly $30 billion (€27 billion) and Altria generated about $20 billion (€18 billion) last year. Both companies said there could be no assurance if a deal would be reached.


Any deal would need to be approved by the companies' respective boards, shareholders, regulators, as well as other conditions.

"The regulatory environment in the US has been volatile and more burdensome for tobacco companies over the past 5 years and it is clear that the FDA has combustible cigarettes in its cross-hairs," said Stifel's Growe.

News by Reuters, edited by Donna Ahern Checkout. Click subscribe to sign up for the Checkout print edition.

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