With the tobacco industry at large struggling to deal with shrinking demand for cigarettes and other products, two of the largest companies in the sector are moving forward with a new mega-merger. Altria (NYSE: MO) and Philip Morris International (NYSE: PM) are now in advanced talks regarding a potential merger according to The Wall Street Journal.
Both businesses have similar brands of cigarettes, with both companies selling one of the world’s best-known brands, Marlboro, in their own locations around the world. Together, the combined business entity is expected to be worth over $200 billion, however, it is unsure whether this merger would be enough to turn around plummeting cigarette sales. At present, both sides are considering an all-stock deal with no premium. Philip Morris would end up controlling around 59 percent of the combined entity under specific terms.
With fewer adults smoking and the advent of electronic cigarettes further chipping away at traditional tobacco users, both companies have been making major acquisitions to help shore up their businesses. For example, Altria bought a $12.8 billion stake in Juul last year, an e-cigarette start-up that’s grown quickly since going public that could potentially become a major competitor to regular tobacco companies in the years to come.
Philip Morris originally spun off from Altria over a decade ago, but now the two companies could come together once again. Both firms issued statements that confirmed they were discussing an all-stock merger but emphasized that there’s no assurance that these talks will lead to any agreement. “There can be no assurance that any agreement or transaction will result from these discussions. Additionally, there can be no assurance that if an agreement is reached, that a transaction will be completed,” read an official statement from Philip Morris’s website.
While the U.S. remains the most profitable market for both companies outside of China, where tobacco is strictly controlled by the state, tobacco companies are now dealing with an overhaul of U.S. regulatory policy. Specifically, the FA is trying to lower nicotine levels in cigarettes to nonaddictive levels and have recently proposed to put more graphic warning labels on cigarettes to further discourage consumers.
Overall, the tobacco industry as a whole doesn’t have a particularly bright future ahead of it. Whether this possible merger could turn things around is yet to be seen.
Altria Company Profile
Altria comprises Philip Morris USA, U.S. Smokeless Tobacco, John Middleton, Ste. Michelle Wine Estates, Nu Mark, and Philip Morris Capital. It holds a 10.2% interest in the world’s largest brewer, Anheuser-Busch InBev. Through its tobacco subsidiaries, Altria holds the leading position in cigarettes and smokeless tobacco in the United States and the number-two spot in machine-made cigars. The company’s Marlboro brand is the leading cigarette brand in the U.S. with a 40% share. – Warrior Trading News
Philip Morris Company Profile
Philip Morris International is a leading international tobacco company engaged in the manufacture and sale of cigarettes and other nicotine-containing products in markets outside the United States. Through multidisciplinary capabilities in product development, state-of-the-art facilities, and scientific substantiation, the company aims to ensure that its smoke-free products meet adult consumer preferences and rigorous regulatory requirements. – Warrior Trading News
