PMI and Altria broke up in 2008 but think a new merger could strengthen both companies.
On Tuesday, Philip Morris International (PMI) and Altria announced they are considering a potential merger. The companies didn’t disclose what kind of stake they would hold in the newly formed company. But according to CNBC, sources say the companies are considering a 59-41 split, with PMI being the largest stakeholder.
Talks of a merger allegedly began and intensified over the summer months and a more formal announcement could be coming within weeks. Sources say that the current deal doesn’t give a premium for shareholders at either company.
The backstory on Altria and PMI
PMI and Altria used to be one company before splitting up more than a decade ago. Altria spun off from PMI in 2008 and focused its efforts largely on the U.S., selling Marlboro cigarettes. PMI focused most of its efforts overseas where cigarette sales were growing at the time.
But beginning in 2012, international cigarette sales started to drop and both companies started to struggle. From 2017 to 2018, PMI’s global shipment volume fell by 3%. Then it fell by 1.9% during the first half of 2019. Altria’s shares are down 21% from a year earlier.
Analysts seemed unsurprised by the news many have speculated the two companies would eventually reunite. Cigarette sales continue to fall and both companies are looking for new markets to enter into. The plan is that the combined company would focus on e-cigarettes and cannabis.
Altria has invested in several companies, including the e-cigarette maker Juul and the Canadian cannabis company Cronos. However, this could be a problem for PMI since its CEO Andre Calantzopoulos has openly expressed his dislike for both industries.
How investors reacted to the news
It stands to reason that investors would be excited about the potential merger but shares of both companies fell after the news came out. This was mostly because investors won’t receive a premium on shares.
But many analysts were excited about the news of a possible merger, including Wells Fargo analyst Bonnie Herzog. Herzog said she thinks the merger makes a lot of sense, especially given the tightening regulations around smoking. Other analysts responded favorably as well, recognizing that the merger would create a much stronger company.
However, all the excitement may be for naught since there is the possibility that the merger won’t go through. In a press release from PMI, the company stated that the deal first has to be approved by both boards and all involved shareholders.