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Philip Morris and Altria merger: Big Tobacco bulks up

Philip Morris and Altria have reunited. This could spark another round of consolidation in the embattled tobacco industry. Matthew Partridge reports.

Man using an electronic cigarette in Washington, DC on October 2, 2018. © EVA HAMBACH/AFP/Getty Images
Altria owns 35% of JUUL, a popular vaping brand

Man using an electronic cigarette in Washington, DC on October 2, 2018. © EVA HAMBACH/AFP/Getty Images

Last week, tobacco giants Philip Morris International (PMI) and Altria, which originally split from each other in 2008, revealed that they were in "advanced talks" to create a $200bn "blockbuster deal", say Jennifer Maloney and Cara Lombardo in The Wall Street Journal. The agreement would involve "an all-stock deal with no premium", which means that Philip Morris would control 59% of the combined entity. This "merger of equals" would involve a "balanced" name, board and management team. It could be agreed "within weeks". Both groups have been grappling with slowing demand for cigarettes and the advent of new smoking products.

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The original rationale for the split didn't pan out, says Tom Buerkle on Breakingviews. The idea was that Philip Morris "would capitalise on the faster growth available in emerging markets, without the drag of US constraints", including litigation. Yet the US market hasn't proved that bad. In the last eight years, "Altria has provided shareholders with a total return of nearly 300%, including dividends", while PMI has "managed barely more than half that".

Better late than never

"There is more smoke and a lot more fire ahead for Big Tobacco", as it is likely "to spark further consolidation in an industry where size matters," says Sabah Meddings in The Sunday Times. With the merged company set to have annual sales of $50bn, there will be pressure on rival BAT to do a takeover of its own to keep up. Japan Tobacco and Imperial (third and fifth globally) will also be nervous as "it's not easy being the fourth-biggest company out of four".

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