Marlboro maker Philip Morris International said on Tuesday 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.
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 capitalisation of approximately $200 billion (Dh734.5bn).
It would come two years after British American Tobacco bought out Reynolds American for $49bn, 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 between 41-42 per cent 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 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.
The two have responded with new offerings. Philip Morris, which operates outside the United States, has developed a heated tobacco product called iQOS. Altria, which operates in the United States and still sells Marlboro in the country, acquired a 35 per cent stake in vaping company Juul Labs last year for $12.8bn.
Some analysts and investors fretted that the lack of geographic overlap between the two companies could limit the value of operational synergies. Philip Morris and Altria shares ended trading on Tuesday down 7.8 per cent and 4 per cent, respectively, giving the companies market capitalisations of $112bn and $84.5bn.
"There currently is no overlap in operations of both companies other than the IQOS licensing agreement in the US. As such, there would be little in the way of cost synergies other than corporate overheads and better leafbuying power," Jefferies analysts said in a research note.
Philip Morris and Altria see scope in consolidating their manufacturing operations to generate annual synergies of more than $800 million, according to the source.
Industry-wide cigarette sales volumes tumbled 4.5 per cent on an adjusted basis in 2018, according to analysts at Cowen. Global sales of cigarettes were estimated at $714bn last year, according to Euromonitor International.
In contrast, the e-cigarette market was worth about $11bn in 2018 and is expected to grow at more than 8 per cent annually over the next five years, according to research firm Mordor Intelligence.
In April, Philip Morris won approval from the US Food and Drug Administration to sell iQOS in the United States.
"With disruption facing the world of tobacco, we can see some merit in a re-merger," Bernstein analyst Callum Elliott said in a note. "The combined entity - Philip Morris 2.0 - could present a united front" on next-generation products such as iQOS, and "go about a coordinated global brand-building exercise the same way Philip Morris originally built Marlboro."
Unlike combustible cigarettes, iQOS devices heat tobacco-filled sticks wrapped in paper, generating an aerosol that contains nicotine. They are different from e-cigarettes such as the popular Juul device, which vapourises a nicotine-filled liquid.
Altria can already market iQOS in the United States under a licensing agreement, which includes royalty payments to Philip Morris. A merger between the two companies would simplify that agreement. The source close to the deal talks said the merger negotiations started as an extension of this partnership.
At the same time, Altria could tap into Philip Morris' global sales force to help Juul's international expansion.
In a note to clients on Tuesday, Wells Fargo analyst Bonnie Herzog said a deal would create the leading global nicotine company by improving cash flow and accelerating the worldwide rollout of Juul and iQOS.
Philip Morris has annual revenue of nearly $30bn, while Altria generated about $20bn 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.
No more lice
Defining head lice
Pediculus humanus capitis are tiny wingless insects that feed on blood from the human scalp. The adult head louse is up to 3mm long, has six legs, and is tan to greyish-white in colour. The female lives up to four weeks and, once mature, can lay up to 10 eggs per day. These tiny nits firmly attach to the base of the hair shaft, get incubated by body heat and hatch in eight days or so.
Identifying lice
Lice can be identified by itching or a tickling sensation of something moving within the hair. One can confirm that a person has lice by looking closely through the hair and scalp for nits, nymphs or lice. Head lice are most frequently located behind the ears and near the neckline.
Treating lice at home
Head lice must be treated as soon as they are spotted. Start by checking everyone in the family for them, then follow these steps. Remove and wash all clothing and bedding with hot water. Apply medicine according to the label instructions. If some live lice are still found eight to 12 hours after treatment, but are moving more slowly than before, do not re-treat. Comb dead and remaining live lice out of the hair using a fine-toothed comb.
After the initial treatment, check for, comb and remove nits and lice from hair every two to three days. Soak combs and brushes in hot water for 10 minutes.Vacuum the floor and furniture, particularly where the infested person sat or lay.
Courtesy Dr Vishal Rajmal Mehta, specialist paediatrics, RAK Hospital
If you go:
The flights: Etihad, Emirates, British Airways and Virgin all fly from the UAE to London from Dh2,700 return, including taxes
The tours: The Tour for Muggles usually runs several times a day, lasts about two-and-a-half hours and costs £14 (Dh67)
Harry Potter and the Cursed Child is on now at the Palace Theatre. Tickets need booking significantly in advance
Entrance to the Harry Potter exhibition at the House of MinaLima is free
The hotel: The grand, 1909-built Strand Palace Hotel is in a handy location near the Theatre District and several of the key Harry Potter filming and inspiration sites. The family rooms are spacious, with sofa beds that can accommodate children, and wooden shutters that keep out the light at night. Rooms cost from £170 (Dh808).
Five expert hiking tips
- Always check the weather forecast before setting off
- Make sure you have plenty of water
- Set off early to avoid sudden weather changes in the afternoon
- Wear appropriate clothing and footwear
- Take your litter home with you
Lewis Hamilton in 2018
Australia 2nd; Bahrain 3rd; China 4th; Azerbaijan 1st; Spain 1st; Monaco 3rd; Canada 5th; France 1st; Austria DNF; Britain 2nd; Germany 1st; Hungary 1st; Belgium 2nd; Italy 1st; Singapore 1st; Russia 1st; Japan 1st; United States 3rd; Mexico 4th
SUZUME
%3Cp%3EDirector%3A%20Makoto%20Shinkai%3C%2Fp%3E%0A%3Cp%3EStars%3A%20Nanoka%20Hara%2C%20Hokuto%20Matsumura%2C%20Eri%20Fukatsu%3C%2Fp%3E%0A%3Cp%3ERating%3A%204%2F5%3C%2Fp%3E%0A
ELIO
Starring: Yonas Kibreab, Zoe Saldana, Brad Garrett
Directors: Madeline Sharafian, Domee Shi, Adrian Molina
Rating: 4/5
Some of Darwish's last words
"They see their tomorrows slipping out of their reach. And though it seems to them that everything outside this reality is heaven, yet they do not want to go to that heaven. They stay, because they are afflicted with hope." - Mahmoud Darwish, to attendees of the Palestine Festival of Literature, 2008
His life in brief: Born in a village near Galilee, he lived in exile for most of his life and started writing poetry after high school. He was arrested several times by Israel for what were deemed to be inciteful poems. Most of his work focused on the love and yearning for his homeland, and he was regarded the Palestinian poet of resistance. Over the course of his life, he published more than 30 poetry collections and books of prose, with his work translated into more than 20 languages. Many of his poems were set to music by Arab composers, most significantly Marcel Khalife. Darwish died on August 9, 2008 after undergoing heart surgery in the United States. He was later buried in Ramallah where a shrine was erected in his honour.
Unresolved crisis
Russia and Ukraine have been locked in a bitter conflict since 2014, when Ukraine’s Kremlin-friendly president was ousted, Moscow annexed Crimea and then backed a separatist insurgency in the east.
Fighting between the Russia-backed rebels and Ukrainian forces has killed more than 14,000 people. In 2015, France and Germany helped broker a peace deal, known as the Minsk agreements, that ended large-scale hostilities but failed to bring a political settlement of the conflict.
The Kremlin has repeatedly accused Kiev of sabotaging the deal, and Ukrainian officials in recent weeks said that implementing it in full would hurt Ukraine.