Philip Morris CEO on Altria and the future of e-cigarettes
PMI is in talks with Altria on a possible reverse merger
Philip Morris International is in talks with Altria about a possible merger, the tobacco giant announced on Tuesday.
An agreement, if reached, would bring together Philip Morris International and Altria more than ten years after the separation of the two companies. Altria spun off PMI in 2008 and remained a mostly US-focused company selling Marlboro cigarettes domestically, while PMI focused on selling cigarettes overseas..
Analysts have long speculated that the two companies will merge back. The tobacco industry is changing rapidly, cigarette sales are falling, companies are looking for new growth points. The merger would create a global tobacco manufacturer with investments in e-cigarettes and cannabis.
Cowen analysts report that cigarette industry sales fell 4.5% in 2018 on an adjusted basis. But the e-cigarette market, according to research firm Mordor Intelligence, was worth about $ 11 billion in 2018 and is expected to grow more than 8% annually over the next five years..
PMI shares drop 8% after confirming negotiations, while Altria shares jumped almost 8%.
Prior to the announcement, the market value of the PMI was approximately $ 121 billion, while the public-traded Altria shares were valued at approximately $ 88 billion..
PMI warned in a press release that negotiations may not lead to a deal. Any transaction must be approved by the relevant company boards, shareholders, regulators, and «other conditions».
Amid pressure on cigarette sales, PMI has made a big bet on the iQOS, a device that heats wrapped tobacco rather than burns it. The company has already unveiled the iQOS in 48 markets around the world and will bring it to the US next month. According to PMI, there are about 11 million iQOS users worldwide.
The US Food and Drug Administration approved the sale of the iQOS earlier this year. Altria Already Sells IQOS Under Philip Morris Licensing Agreement.
Altria, meanwhile, has invested $ 12.8 billion in a 35% stake in Juul, the country’s largest e-cigarette company that vaporizes nicotine liquid. Altria justifies its eye-popping investment in Juul with its potential in global markets. While Altria is helping Juul expand its US presence, the company has little to offer overseas. Combining with PMI could change that.
Altria also spent $ 1.8 billion on a 45% stake in the Canadian cannabis company Cronos. Both companies will focus on cannabis products for vaporizers.
The PMI generated $ 79.82 billion in revenue last year, including excise taxes, according to the regulator’s report. Altria’s sales last year were $ 25.36 billion. PMI shares are up about 9% this year, while Altria shares are up about 3.5%.