Tobacco giants Philip Morris International and Altria Group are in talks to reunite, the companies said Tuesday, in a deal that would combine the most popular brands of both traditional and electronic cigarettes.
The companies described the proposed agreement in a statement as an "all-stock, merger of equals," but warned that the discussions might not result in an agreement.
The number of cigarettes sold in the United States fell 3.5 percent in 2017 from the previous year, according to the Centers for Disease Control and Prevention. The e-cigarette market was worth around $ 1
Last year, Altria decided to pay nearly $ 13 billion for a 35 percent stake in Juul Labs. The proposed merger will be a boost for Altria's investment. Juul has tried to expand overseas, but it lacks the global distribution network of Philip Morris, which has grown since it was spun off from Altria in 2008.
The move would also allow Philip Morris to profit from Juul, rather than compete with that. Philip Morris's marking product in the e-cigarette market is IQOS, a pen-like device that heats a tobacco stick and releases a tobacco-flavored steam, but has fewer harmful chemicals than cigarette smoke does. It is available in more than 47 countries, but was recently approved for sale in the United States. The product will be marketed in the United States through a licensing agreement with Altria.
The Food and Drug Administration's two-year review of IQOS delayed its introduction and gave Juul time to capture the market. E-cigarette manufacturers were delayed in seeking F.D.A. approval but Philip Morris provided countless studies and testimonies to cope with tough regulatory barriers. It is still waiting for the F.D.A.'s decision to sell IQOS as a product from 19459006 at reduced risk, which means they can be marketed as safer than traditional cigarettes.
Shares in both companies fell on Wall Street as investors questioned the deal. Altria shares dropped 4 percent, and Philip Morris fell 7.8 percent.
But in the global race to market reduced-risk nicotine products, both companies would benefit from lower costs and higher production, Bonnie Herzog, CEO of Wells Fargo Securities, said in an email Tuesday.
"We have long believed that a combination of the two companies will make a lot of sense," Herzog said. One of the benefits of a merger would be more diversified geographic sales, which would reduce the risk of Altria from the F.D.A.'s focus on weaponization and nicotine reduction, she said.
Spinoff by Philip Morris was intended to isolate it from the lawsuits on smoking liability and federal regulatory action that had plagued Altria. With his global reach, Philip Morris is now much bigger than his former parents.
Garrett Nelson, senior stock analyst at CFRA Research, said it might make sense for the companies to reunite, but Philip Morris investors may be listening to Altria's $ 29 billion debt burden from investments in Juul and Cronos, a cannabis company .
"In our opinion, it makes more sense for Altria because of the ongoing decline in cigarette sales in the United States and the increased regulatory scrutiny of both tobacco and e-cigarettes," Nelson said.
Public health officials were less enthusiastic about the prospects of a merger.
"This is very dangerous to public health," said Matthew L. Myers, president of the Campaign for Tobacco-Free Children. "There is a real concern that a strengthened Philip Morris poses an increased threat to tobacco control measures both in the United States and across the globe."
Scott Gottlieb, a former F.D.A. Commissioner, said it was unclear what the merger would mean for public health.
"It's hard to say it's a good development," said Dr. Gottlieb, who originally supported extending the deadline for Juul and other e-cigarette companies to seek agency approval, and regretted it as youth attenuation grew. "One would hope that the combined device would be more focused on truly transferring smokers from combustible tobacco and on modified risk products for adults who still want access to nicotine."
F.D.A. have had difficulty fighting the rise of e-cigarettes. Originally, the F.D.A. officials wanted to encourage development as an alternative to traditional cigarettes, which kill about 480,000 Americans a year.
In July 2017, the agency gave e-cigarette manufacturers five more years to prove that their products offer more benefit than risk to the public.
Meanwhile, the youth's vaping speed went up. The agency forced Juul and other businesses to show that they could keep their products away from young people.
Juul responded by limiting its most popular flavors to online sales with age verification technology. Some companies have followed suit, although others have emerged to take Juul's place in outlets.
Joshua Raffel, a Juul spokesman, said the deal would not affect the company's mission.
"Altria is a minority investor in Juul Labs," he said. “Just as we control our company, they control theirs. Our focus is and will remain entirely on helping adult smokers switch from combustible cigarettes, the leading cause of preventable death in the world. ”