Marlboro maker Philip Morris International said it was in talks to reunite in a merger with Altria Group following its 2008 spin-off as the tobacco giants seek to pool resources in the fast-growing e-cigarette market, Reuters reports.
The merger between the two companies, the biggest ever in the consumer sector and the fourth-largest deal of all time, would create a tobacco giant with a market capitalization of approximately US$200 billion.
It would come two years after British American Tobacco bought out Reynolds American Inc. for US$49 billion, underscoring how the decline in cigarette smoking globally is pushing tobacco companies to seek scale and pool resources in their development of alternative products.
Under the terms of the all-stock merger being discussed, Altria shareholders would receive no premium and own 41 to 42 percent of the combined company, with Philip Morris shareholders owning the remainder, according to a source familiar with the matter who was not authorized to discuss the details publicly.
The board of the combined company would be split evenly between Philip Morris and Altria directors, the source said.
If the deal negotiations prove successful, an agreement could be reached by the end of September, the source added.
Philip Morris and Altria see scope in consolidating their manufacturing operations to generate annual synergies of more than US$800 million, according to the source.
The two US-headquartered companies separated 11 years ago to focus on different geographic markets, at a time when tobacco stocks generated steady yields. Since then, the industry has been disrupted by a move away from traditional smoking into e-cigarettes and vaping.
Philip Morris has annual revenue of nearly US$30 billion, while Altria generated about US$20 billion last year. Both companies said there could be no assurance a deal would be reached.
Any deal would need to be approved by the companies’ respective boards and shareholders.
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