Philip Morris International
’s long association, recent talk that they might merge has left many investors scratching their heads. The latest moves toward government regulation may help explain why the cigarette companies want to recombine.
The devil will be in the details.
The pair used to be one company, but a little over a decade ago,
(ticker: MO) spun off Philip Morris (PM), charging it with overseeing international markets.
handled the U.S.
(That is why both companies have claim to well known brands like Marlboro, which Altria sells in the U.S. and Philip Morris markets overseas. It is also the reason Altria will handle the American rollout of Philip Morris’s heat-not-burn iQOS device.)
The idea of recombining the two, especially in an age of big tobacco consolidation, has been floated in the past. It became more than theoretical last month: Late August brought rumors of talks between the two, which the companies later confirmed.
While plenty of analysts were quick to praise the deal, others have been more cautious. Investors aren’t convinced either: Both Altria and Philip Morris have seen their stocks suffer since they announced negotiations.
It isn’t hard to see why the naysayers are concerned. Philip Morris stock has taken the bigger hit: A recombination with Altria would expose it to U.S. regulation, which it has thus far been able to avoid, as well as worries about falling sales of traditional cigarettes in the U.S.
Moreover, while Philip Morris’s iQOS has won some praise, investors have been less eager to reward Altria for its attempts to position itself for a cigarette-free future. Its initiatives include putting money to work in the nicotine pouch product on!, cannabis company Cronos Group (CRON), and most famously, Juul Labs, the vaping startup.
The latter is the real sticking point for many. A number of deaths and illnesses in recent weeks has put the spotlight squarely on vaping. As the biggest player in the U.S., Juul has come under sharper scrutiny than others.
Additionally, Altria has a noncompete agreement with Juul, which may be leading to concern that the combined company could abandon iQOS before it has a chance to get off the ground in the U.S. Another possibility, also unappealing, is that the merged business could give up any active say over how Juul operates.
Advocates of the merger say that a recombined firm would enjoy larger scale and be better able to compete with peers. And while the strong greenback makes it costly for Philip Morris to repatriate profits, the combined business could use dollars generated by the U.S. operations to pay for share buybacks and dividends, the argument goes.
The deal’s backers may have gotten another arrow in their quiver this week, when the Food and Drug Administration announced a potential ban on all flavored vaping products. While regulation is always a threat to big tobacco, and the idea of cracking down on flavors specifically has long been in the mix, a swifter or more draconian government move—in reaction to mounting public health worries—could make increased size and scale more appealing to Altria and Philip Morris.
All that may do little to persuade Philip Morris investors. The stock had a strong run in late 2018 and for much of this of this year. Philip Morris is still up nearly 12% in 2019, while Altria is off more than 10%, but the former’s rally, which had lifted the shares ahead of the
has been cut short by the talks.
Some of the concern may dissipate if more concrete rules on vaping emerge, even if they are stricter. Yet Philip Morris investors may be reluctant to expose themselves to FDA regulation once again, especially because standards on vaping are less stringent elsewhere.
That isn’t to say that Philip Morris holds all the cards. Altria shareholders may also feel that a merger of equals—the plan under discussion—would give them short shrift.
While Philip Morris has soared lately, it is a relatively new development. In the past decade, its stock price has risen just 53%, compared with a 149% gain for Altria. Both lag behind the S&P 500’s 185% rise over the same period.
Foreign exchange and costs associated with iQOS have weighed on Philip Morris profits in recent years. The bulls argue that is changing, but Altria shareholders may argue that they deserve a premium.
Whether or not a deal gets done remains to be seen, but there are other reasons for investors to root for this outcome. Lawsuits over how tobacco companies marketed their products—and what they knew about the health risks of smoking—were plaguing the industry at the time of the split; it made sense to divide the U.S. and overseas businesses to simplify the regulatory risks.
That litigation is much less of an issue today as the industry shifts toward vaping and other alternatives. (Vaping could spawn its own litigation, and further sour Philip Morris shareholders on the deal, but any lawsuits are unlikely to be as big as those over cigarettes.)
A brave new world for tobacco may require a new old company to navigate it.
Philip Morris International
（股票代码： MO ）从菲利普莫里斯公司（ PhilipMorris ）分拆出来，负责监管国际市场。
（这就是为什么这两家公司都声称拥有知名品牌，比如万宝路( Marlboro )，奥驰亚在美国和菲利普莫里斯( Philip Morris )的海外市场都有销售。这也是奥驰亚将在美国推出菲利普莫里斯( Philip Morris )热销的 iQOS 设备的原因。）
此外，尽管菲利普莫里斯( Philip Morris )的 iQOS 赢得了一些赞誉，但投资者对奥驰亚( Altria )为实现无烟未来所做的努力不那么热衷。它的举措包括投入资金在尼古丁袋产品上工作！大麻公司 Cronos Group （ CRON ）和最著名的创业公司 Juul Labs 。
此外，奥驰亚与 Juul 达成了一项非竞争协议，这可能导致人们担心合并后的公司可能会在有机会在美国落地之前放弃 iQOS 。另一种可能性，也不会让人反感，那就是合并后的公司可能放弃对 Juul 运营方式的任何积极发言权。
本周，当美国食品药品监督管理局（Food and Drug Administration）（ FoodandDrugAdministration ）宣布可能禁止所有口味的 vaping 产品时，这笔交易的支持者们可能又获得了另一支箭。尽管监管总是对烟草巨头构成威胁，尤其是对口味进行整顿的想法早就存在了，但为了应对日益加剧的公众健康担忧，政府采取更快或更严厉的举措，可能会让规模和规模的扩大对奥驰亚和菲利普莫里斯更具吸引力。
如果出现更具体的关于虚荣的规则，即使是更严格的规则，有些担心也会消散。然而，菲利普莫里斯的投资者可能不愿意再次暴露在 FDA 的监管之下，特别是因为在其他地方，有关 vaping 的标准不那么严格。
与 iQOS 相关的外汇和成本近年来拖累了菲利普莫里斯的利润。看涨人士认为这种情况正在改变，但奥驰亚的股东可能会认为，他们应该得到溢价。
这场诉讼在今天不是一个问题，因为该行业转向了 vaping 和其他选择。（ Vaping 可能会引发自己的诉讼，并进一步让菲利普莫里斯的股东对这笔交易不满，但任何诉讼都不太可能像香烟诉讼那样严重。）