Altria Confirms Merger Talks With Philip Morris International

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Altria Confirms Merger Talks With Philip Morris International

08/27/2019
PMI's IQOS

RICHMOND, Va. — Two major tobacco players are exploring the possibility of joining forces.

Altria Group Inc. confirmed it is in discussions with Philip Morris International Inc. (PMI) to merge the two companies. The talks center around a potential all-stock, merger of equals.

According to Altria, there can be no assurance that any agreement or transaction will result from these discussions. In addition, if Altria and PMI reach an agreement, there can be no assurance that the two sides will complete the transaction.

Any transaction would be subject to the approval of the two companies' boards and shareholders, and regulators, as well as other conditions.

Based in Richmond, Altria's wholly owned subsidiaries include Philip Morris USA Inc. (PM USA), U.S. Smokeless Tobacco Co. LLC, John Middleton Co., Sherman Group Holdings LLC and its subsidiaries, Ste. Michelle Wine Estates Ltd., and Philip Morris Capital Corp.

The company holds equity investments in Anheuser-Busch InBev SA/NV, Juul Labs Inc. and Cronos Group Inc.

PMI is a leading international tobacco company engaged in the manufacture and sale of cigarettes, smoke-free products and associated electronic devices and accessories, and other nicotine-containing products in markets outside the United States.

PMI's smoke-free IQOS product portfolio includes heat-not-burn and nicotine-containing vapor products. Its heat-not-burn product is available for sale in 48 markets in key cities or nationwide under the IQOS brand.

In December 2013, the two companies came together to form a strategic framework to commercialize reduced-risk products and electronic cigarettes. Two years later, Altria and PMI extended the pact to include a joint research, development and technology-sharing agreement, as Convenience Store News previously reported.

As part of the agreement, Altria's PM USA commercializes IQOS in the United States with three HeatStick variants: Marlboro Heatsticks, Marlboro Smooth Menthol Heatsticks and Marlboro Fresh Menthol Heatsticks. The company brings the product to its first test market, Atlanta, in September.

Rumors about a possible merger have been swirling around for some time, with reports kicking up a notch on Aug. 26.

In response to the renewed speculation, Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC, noted the firm believes a merger will happen especially considering Altria's stake in Juul and IQOS.

According to Herzog, key reasons the probability of a deal are now higher include:

  • Altria's stake in Juul and the vapor company's "clear dominance" of the U.S. e-cigarette/vapor market and international ambitions;
  • PMI will capture the full margin and accelerate the growth of IQOS in the U.S. given its full control over sales and distribution; and 
  • PMI can invest Altria's strong U.S. free cash flow to further catapult the growth of IQOS globally.

Herzog first raised the possibility of an Altria-PMI tie up in December 2016