Tobacco industry giants Philip Morris and Altria have ended their merger talks. Their plans to reunite – a merger of equals – received less than satisfactory reactions from investors.
The companies said in August that they planned a possible 100% stock acquisition, making it essentially a merger of equals. Altria broke off Philip Morris in 2008, and the planned deal would have united the two companies once more.
The business combination would have resulted in a whopping $200 billion firm that dwarfed its competition. For instance, British American Tobacco, its next largest rival, would be $120 billion short. Intangible assets, such as customer lists and international market access, would also benefit the combination.
However, cigarette smoking is slowly losing favor among consumers.
Regulatory changes are slowly changing the vaping and cannabis landscape, and Altria’s investments in these industries, which looked like smart bets when they were first made, are slowly losing being dragged down.
The Marlboro manufacturer’s multi-million investment in e-cigarette firm Juul has lost quite a bit of steam as regulators are slowly banning and phasing out its fruit-flavored vape pods from the markets. Furthermore, the nation’s largest retail chain, Walmart has expressed its decision to stop carrying all e-cigarettes altogether in its inventory amid rising scrutiny.
Analysts at Stifel, a brokerage and investment banking firm, wrote in a letter to investors that multiple factors, such as significant investor pushback, risk surrounding the FDA, and weak volumes led to the decision.
Philip Morris shares spiked by over 6% for the last week of September, bringing the market value of the firm at about $118 billion. Altria shares, however, were down 2.4%, bringing its value to about $74 million.
IQOS Joint Launch
Philip Morris CEO Andre Calantzopoulos said that in the place of a merger of equals, their company and Altria would focus on jointly launching IQOS, a heated tobacco product.
The device heats tobacco without burning it, to release flavorful nicotine-laded tobacco vapor.
The firms said that IQOS is the single tobacco product that has premarket authorization to sell from the US Food and Drug Administration. An estimate of 8 million adult smokers all around the world have already utilized the product. PMI currently sells IQOS in 48 international markets, including Japan, Korea, and Canada.
Altria recently made investments that showed their intent to diversify beyond Tobacco, acquiring stakes in Juul and Cronos, a Canadian marijuana company. Former Altria executive K.C Crosthwaite will replace Kevin Burns as CEO amidst the outbreak of a mysterious lung disease that hit the vaping industry.
Altria separated from PMI in 2008. Altria focused mainly in the US through its Marlboro brand, while Philip Morris turned their efforts overseas.