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Merger off between Altria and Philip Morris

Altria Group Inc. and Philip Morris International Inc. (PMI) have decided against joining forces as merger talks between the two tobacco leaders end.

“While we believed the creation of a new merged company had the potential to create incremental revenue and cost synergies, we could not reach agreement,” said Altria’s Chairman and CEO Howard Willard. “We look forward to continuing our commercialization of IQOS in the U.S. under our existing arrangement.”

In late 2013, Altria and PMI formed a strategic partnership to bring PMI’s heat-not-burn product IQOS to the United States.

This spring, the Food and Drug Administration approved a Pre Market Tobacco Application for IQOS, paving the way for the product to hit U.S. stores. In September, the first U.S. IQOS retail store at Lenox Square in Atlanta.

IQOS is an electronic device that heats tobacco-filled sticks wrapped in paper to generate a nicotine-containing aerosol. Under and exclusive licensing agreement with PMI, Philip Morris USA will commercialize IQOS in the U.S. with Marlboro Heatsticks.

“After much deliberation, the companies have agreed to focus on launching IQOS in the U.S. as part of their mutual interest to achieve a smoke-free future,” added PMI CEO André Calantzopoulos.

Rumors about a possible merger have been around for years, kicking up every few months— with the most recent coming at the end of the summer. On Aug. 27, Altria and PMI did confirm they were in discussions about merging the two companies. However, at the time, Altria said there can be no assurance that any agreement or transaction will result from these discussions.

“While we are dismayed by today’s announcement that PMI and Altria have ended merger talks, we aren’t all that surprised given the length of negotiations (nearly a month since talks were confirmed) and the litany of negative FDA [Food and Drug]/health headlines throughout,” said Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC,

Based in Richmond, Altria’s wholly owned subsidiaries include Philip Morris USA Inc. (PM USA), U.S. Smokeless Tobacco Co. LLC, John Middleton Co., Sherman Group Holdings LLC and its subsidiaries, Ste. Michelle Wine Estates Ltd., and Philip Morris Capital Corp.

The company holds equity investments in Anheuser-Busch InBev SA/NV, Juul Labs Inc. and Cronos Group Inc.

PMI is a leading international tobacco company engaged in the manufacture and sale of cigarettes, smoke-free products and associated electronic devices and accessories, and other nicotine-containing products in markets outside the United States.

PMI’s smoke-free IQOS product portfolio includes heat-not-burn and nicotine-containing vapor products. Its heat-not-burn product is available for sale in 48 markets in key cities or nationwide under the IQOS brand.

Originally published at Convenience Store News.


Altria in merger discussions with Philip Morris International

Screen Shot 2019-09-03 at 11.30.55 AMTwo major tobacco players are exploring the possibility of joining forces.

Altria Group Inc. confirmed it is in discussions with Philip Morris International Inc. (PMI) to merge the two companies. The talks centre around a potential all-stock, merger of equals.

According to Altria, there can be no assurance that any agreement or transaction will result from these discussions. In addition, if Altria and PMI reach an agreement, there can be no assurance that the two sides will complete the transaction.

Any transaction would be subject to the approval of the two companies’ boards and shareholders, and regulators, as well as other conditions.

Based in Richmond, Altria’s wholly owned subsidiaries include Philip Morris USA Inc. (PM USA), U.S. Smokeless Tobacco Co. LLC, John Middleton Co., Sherman Group Holdings LLC and its subsidiaries, Ste. Michelle Wine Estates Ltd., and Philip Morris Capital Corp.

The company holds equity investments in Anheuser-Busch InBev SA/NV, Juul Labs Inc. and Cronos Group Inc.

PMI is a leading international tobacco company engaged in the manufacture and sale of cigarettes, smoke-free products and associated electronic devices and accessories, and other nicotine-containing products in markets outside the United States.

PMI’s smoke-free IQOS product portfolio includes heat-not-burn and nicotine-containing vapor products. Its heat-not-burn product is available for sale in 48 markets in key cities or nationwide under the IQOS brand.

In December 2013, the two companies came together to form a strategic framework to commercialize reduced-risk products and electronic cigarettes. Two years later, Altria and PMI extended the pact to include a joint research, development and technology-sharing agreement, as Convenience Store News previously reported.

As part of the agreement, Altria’s PM USA commercializes IQOS in the United States with three HeatStick variants: Marlboro Heatsticks, Marlboro Smooth Menthol Heatsticks and Marlboro Fresh Menthol Heatsticks. The company brings the product to its first test market, Atlanta, in September.

Rumors about a possible merger have been swirling around for some time, with reports kicking up a notch on Aug. 26.

In response to the renewed speculation, Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC, noted the firm believes a merger will happen especially considering Altria’s stake in Juul and IQOS.

According to Herzog, key reasons the probability of a deal are now higher include:

  • Altria’s stake in Juul and the vapor company’s “clear dominance” of the U.S. e-cigarette/vapor market and international ambitions;
  • PMI will capture the full margin and accelerate the growth of IQOS in the U.S. given its full control over sales and distribution; and
  • PMI can invest Altria’s strong U.S. free cash flow to further catapult the growth of IQOS globally.

Herzog first raised the possibility of an Altria-PMI tie up in December 2016.

Originally published at Convenience Store News.


Altria shares fall on weaker outlook for cigarettes

Screen Shot 2019-07-31 at 5.48.30 PMShares of Altria Group fell last week, as the tobacco company predicted steeper declines for cigarettes in coming years.

The Richmond, Virginia-based company reported second-quarter earnings of roughly $2 billion, or $1.07 per share. Earnings, adjusted for asset impairment costs and non-recurring costs, were $1.10 per share.

The results matched Wall Street expectations, according to analysts surveyed by Zacks Investment Research.

But company executives forecast a bigger drop for cigarette demand in years ahead, with annual volume declines between 4% and 6% through 2023. That’s slightly greater than previous expectations of 4% to 5%.

Altria shares fell $1.81, or 3.6%, to $48.50 last Tuesday.

Altria, the maker of Marlboro cigarettes and Copenhagen chew, has been working to shift its business away from traditional tobacco products amid steady declines. The smoking rate has been falling for decades amid smoking bans, higher taxes and public health efforts urging smokers to quit and discouraging young people from ever starting.

In April the company won federal approval in the U.S. to sell its heat-not-burn cigarette alternative, IQOS, which will go on sale in September. The company has also bought a 35% stake in the vaping juggernaut Juul, which has come under scrutiny for its popularity with teenagers.

Altria CEO Howard Willard said some of the declines in cigarettes are due to more smokers switching to Juul and other electronic cigarettes, battery-powered devices that vaporize a flavoured nicotine solution.

“We believe this reflects both increased availability of satisfying e-vapour products that began mid-year 2018 and higher levels of exclusive e-vapour use,” Willard told analysts.

The owner of Philip Morris USA, the nation’s largest cigarette maker, said revenue increased 5% to $6.62 billion, mainly driven by higher prices. Its adjusted revenue was $5.19 billion, topping Street forecasts. Five analysts surveyed by Zacks expected $5.05 billion.

The company reaffirmed its full-year earnings in the range of $4.15 to $4.27 per share.