Philip Morris and Altria merger: Big Tobacco bulks up

published 5 September 2019

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

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.

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".

"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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Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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