M&A

Analyst Says Altria, Philip Morris Reunion Merger Makes ‘Strategic Sense’

Both companies have seen declining sales as tobacco use has shrunk in the United States.
Vincent RyanAugust 27, 2019

Cigarette maker Philip Morris International (NYSE: PM) said Tuesday that it’s in discussions about the possibility of reuniting with industry leader Altria Group (NYSE: MO) in a possible blockbuster all-stock merger that would create a massive $200-billion-plus company.

Altria spun PM off more than a decade ago, and the two companies sell the same cigarette brands, with Altria in the U.S. market and Philip Morris selling them in other international markets. Among their brands: the American cigarette icon Marlboro.

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Both companies have seen declining sales as tobacco use has shrunk in the United States and faced pressure from alternatives including e-cigarettes.

Significant Uncertainty

The breakup was a success for shareholders of both companies, but RBC Capital Markets analyst Nik Modi said in a Tuesday note to investors that the last two years “have created significant uncertainty, and the future of tobacco is a lot more dynamic than it was in 2008,” when the breakup occurred.

“Given the changing global consumption/regulatory landscape, we believe it makes strategic sense for the Marlboro, IQOS and JUUL brands to have a unified global strategy run by one company,” the analyst said.

RBC has an Outperform rating on Altria with a $68 price target.

Not A Done Deal

PM said in a statement that any transaction, which isn’t a done deal, would be subject to approval of both companies’ shareholders and boards, as well as regulators.

Price Action

Altria shares were down 2.44% at $45.97 at 12:49 p.m., while Philip Morris shares were falling by 4.55% to $74.19.

This story originally appeared on Benzinga.com

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