The tobacco industry is replete with instances of large companies merging to form larger corporations, but there are very few instances in which companies that had been formed after a split come together again. 11 years ago, Philip Morris International had split from Altria due to the slowdown in the cigarette market in the United States and other associated reasons. For instance, dangers association with lawsuits and regulatory issues had also been cited as reasons why Altria had been split in order to protect the larger interests of PMI.
However, the two companies are now back in talks to join forces once again and create a cigarette behemoth that is going to be worth as much as $200 billion. Marlboro, one of the world’s highest-selling cigarette brands, is made by Altria in the United States, while PMI makes it at a global level. The two companies have many other cigarette brands in their stables. If the merger does go through, then it will create a tobacco behemoth. The two companies together generated as much as $15.3 billion in net income in 2018, while total sales for the period had been close to $50 billion. It goes without saying that it is a merger might seem extremely attractive for many.
According to PMI, the deal is going to be completed entirely in stock, and it appears that this particular announcement did not go down well with shareholders. The stock price of both companies experienced drops after the announcement was made, and it is quite clear that shareholders are not quite keen with regards to this massive merger. The PMI stock plunged by 7.2%, while the Altria stock experienced a 4% fall. PMI actually stated that there is no guarantee that any deal is going to be concluded once the discussions are over. However, if the takeover of Altria does come to pass, then it is going to be the sixth biggest takeover in history. However, it is interesting to note that the companies are exploring the possibility of a merger despite the fact that the litigation risks for tobacco companies are not particularly low. Stifel analysts said as much. The analysts noted,
While US litigation risk was sufficient to break these companies apart back in 2008, US regulatory risk is on the same plane, in our view.
