Philip Morris in talks with Altria to create $200-billion tobacco group

Philip Morris International and Altria Group are discussing an all-stock merger, potentially reuniting two of the world’s largest tobacco firms after more than a decade, in a deal aimed at domination of the fast-growing e-cigarette market.

Altria’s shares initially rose more than 6 per cent, while Philip Morris fell almost 10 per cent. A merger of the two would create a company with a market value of more than $200 billion.

Analysts and investors have long speculated that the companies would merge, given mounting pressure from declining cigarette sales and the need to invest in other sources of revenue.

Industry-wide cigarette sales volumes tumbled 4.5 per cent on an adjusted basis in 2018, according to analysts at Cowen. In contrast, the e-cigarette market was worth about $11 billion in 2018 and is expected to grow at more than 8 per cent annually over the next five years, said research firm Mordor Intelligence. 

“The potential to reunite the firms has been often discussed, but we did not believe this would occur given the heavy regulatory burden and its weakening growth profile,” said Stifel analyst Christopher Growe.