Tobacco giants Philip Morris and Altria are in talks to reunite

Marlboro cigarettes. Altria sells Marlboro cigarettes in the U.S., while Philip Morris handles the brand internationally. Both companies have also gotten into vaping.
Altria sells Marlboro cigarettes in the U.S., while Philip Morris handles the brand internationally. Both companies have also gotten into vaping.
(Gene J. Puskar / Associated Press)

Philip Morris International Inc., the maker of Marlboro cigarettes in overseas markets, is in talks to reunite with Altria Group Inc. more than 10 years after the tobacco giants split their operations.

Altria’s stock surged the most since October 2008 on Tuesday’s news, rising as much as 11% — but then lost those gains and fell into the red, ending the day down 4%. Philip Morris shares declined 7.8%. The deal would be the biggest since AT&T Inc. bid for Time Warner in 2016. At the end of last week Philip Morris had a market value of nearly $126.4 billion, while Altria was worth about $86.7 billion.

The companies broke apart more than a decade ago, bowing to pressure from U.S. investors who wanted higher dividends and more share buybacks. The move was also pitched as a way to set free faster-growing overseas operations while the U.S. business was entangled in smoker lawsuits.


But times have changed. Altria — which handles Marlboro in the United States — has recently diversified its portfolio with investments in vaping and cannabis, giving the company more growth potential even as fewer people smoke cigarettes. Some analysts and investors have argued for years that the companies should get back together, a move that would give Philip Morris more U.S. exposure.

The transaction would give New York-based Philip Morris roughly 58% ownership of the new company, with Richmond, Va.-based Altria holding the rest, according to a person familiar with the terms who asked not to be identified because the details weren’t made public.

They are considering a no-premium deal based on the companies’ closing share prices Friday, according to the person. The companies would aim to close the deal within six months and expect to make no divestitures, the person said.

There has been speculation that the companies might get back together. On Monday, Wells Fargo published a research note that said a deal could make sense now, in part because Altria has a stake in the vaping company Juul Labs Inc.

Some on Wall Street see the deal as better for Altria shareholders than for Philip Morris shareholders because of regulatory uncertainty in the United States. Altria gets all its revenue from the U.S., while Philip Morris gets none.

“I’m not really sure why this [deal] is a good idea” with a U.S. regulatory environment that has become “a lot more difficult to predict,” said Brian Barish, president and chief investment officer of Cambiar Investors. His firm oversees $15 billion in assets but sold out of Philip Morris late last year.


A reunification would combine two of the most popular smoking alternative products: IQOS and Juul. Philip Morris has been plowing billions of dollars into promoting IQOS, a heat-not-burn product used by millions of people outside the United States. Altria, meanwhile, has invested $12.8 billion in e-cigarette upstart Juul, which has catapulted itself to the U.S. industry leader in smoking alternatives in just a few years.

Altria also has been planning to start selling IQOS in the United States this year, testing demand in the Atlanta area with a store opening next month.

Philip Morris said in a statement that no agreement had been formally reached and that any deal would be subject to board, shareholder and regulatory approval. Altria also issued a statement confirming the talks.

Like Hollywood, which has been churning out films based on blockbusters of decades past, Wall Street bankers seem to be running out of new ideas. Earlier this month, CBS Corp. agreed to reunite with Viacom Inc. in an $11.7-billion transaction, 13 years after the two media giants split.

Analysts were largely positive on a potential tie-up between Altria and Philip Morris after speculation Monday afternoon that something was brewing. RBC Capital Markets analyst Nik Modi saw several strategic reasons for a deal, including geographic alignment with international competitors and full economic benefit of IQOS in the United States and global access for Juul.

“The potential to reunite the companies has been often discussed, but we did not believe this would occur given the heavy regulatory burden in the U.S. market and its weakening growth profile,” Stifel analyst Chris Growe said in a note. “Perhaps the FDA’s approval of IQOS changed that thinking.”