Big tobacco: Philip Morris and Altria start talks over $210bn mega-merger as Marlboro-makers seek to light up alternative products
One of the world’s most hotly anticipated mega-mergers kicked off yesterday as tobacco giants Philip Morris International (PMI) and Altria said they were in talks to form a $210bn (£170bn) behemoth.
The deal would reunite two companies that split up in 2008 amid regulatory pressures at the time.
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In recent years, both businesses have put alternative nicotine products such as e-cigarettes at the front and centre of their strategies.
The merger would be the fourth largest on record, according to data from Refinitiv.
Analysts have suggested for some time that Altria might want to take PMI back into its fold a decade after they separated.
Yesterday, Altria, which owns Marlboro, confirmed it was in discussions over an all-stock merger of equals.
Declining traditional cigarette sales are putting pressure on the sector, but the global e-cigarette market hit $11bn last year and is expected to grow eight per cent per year over the next half-decade.
“With disruption facing the world of tobacco, we can see some merit in a re-merger,” Bernstein analyst Callum Elliott said in a note.
An agreement between the two companies could help them market each other’s e-cigarettes, other analysts have said.
Altria already plans to market PMI’s Iqos – a heated tobacco product which won US approval in April – to American consumers.
Meanwhile, Altria bought a 35 per cent stake in popular vape pen maker Juul for $12.8bn late last year.
Bonnie Herzog, managing director at Wells Fargo Securities, said ahead of the announcement that PMI would be an ideal partner to help the younger Juul expand beyond the US.
Elliott said: “The combined entity – Philip Morris 2.0 – could present a united front” on alternative products, and “go about a coordinated global brand-building exercise the same way Philip Morris originally built Marlboro.”
Shares in Altria initially jumped around 10 per cent, but they closed down almost four per cent after CNBC reported that there would be no premium on the deal.
Philip Morris shares closed down 7.76 per cent last night.
The deal would solidify the US as the place to be for mega-mergers this year. According to data from Mergermarket, eight of the 10 biggest deals in 2019 have had US buyers.
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US companies have spent 1.9 per cent more on mergers and acquisitions (M&A) this year compared to 2018, although the number of deals has fallen, showing a drive towards bigger acquisitions.
Meanwhile, Europe has dropped off the M&A radar, with 16 per cent fewer deals and 19 per cent less spent.
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