Philip Morris is discussing a blockbuster merger with Altria as more people trade cigarettes for vapes (PM, MO)

Reuters / Mike Segar

Phillip Morris International confirmed Tuesday that it is discussing a potential all-stock "merger of equals" with Altria.
Shares of PMI sank as much as 11% on the news, while Altria gained more than 11% at its peak.
The merger would reunite the two major tobacco companies, which split apart more than a decade ago. Both have large stakes in the US and international markets.
Read more on Markets Insider.

A major tobacco merger could be on the horizon.

In a statement released Tuesday, Philip Morris International confirmed it’s discussing consolidation with Altria Group, which also confirmed the talks. The talks are regarding a potential all-stock "merger of equals," the companies said. The combined company could be worth more than $200 billion.

Altria’s stock surged 11% at its peak following the news, while Philip Morris declined as much as 11%.

A merger would bring the two companies back together more than a decade after they split. In 2008, Altria spun off PMI to focus on the US tobacco market while PMI has been focused on overseas sales.

The team-up talks come at a time when cigarette smoking is declining and electric cigarette use is growing in popularity. To that end, Altria is attractive after paying $12.8 billion for a stake in Juul Labs in December 2018. Juul is a leading vape company popular with millennials and Gen Z. If the proposed merger is completed, it could help Juul expand internationally.

Meanwhile, as cigarette sales face increased pressure, PMI has made a huge bet on its iQOS technology, which heats tobacco instead of burning it. The Food and Drug Administration said the device can be sold in the US this year — Altria will license it from PMI and market it in the US through a deal the two companies reached in April.

Analysts have speculated that the companies were discussing a reconciliation for years. PMI brought in $79.82 billion in revenue in 2018, where Altria brought in $25.36 billion. On Monday, PMI’s market value was about $121 billion while Altria’s was about $88 billion.

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