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Philip Morris, Altria Eye Merger to Meet New Challenges to Tobacco

Investing.com - The companies behind the world’s best-known cigarette brand are looking to reunite.

Philip Morris International (NYSE:PM) and Altria (NYSE:MO) said on Tuesday they’re in talks to carry out an all-stock merger, a deal that would create a company worth more than $200 billion, 11 years after they split in an attempt to shield shareholders from potentially ruinous litigation in the U.S.

Altria's shares rose over 8% in early trading, while Philip Morris fell 5.5%, reflecting the fact that U.S.-focused Altria still trades at a hefty discount to its international half. At Monday’s closing levels, Altria was worth $80 billion, while PMI was worth $121 billion.

In a press release, the two companies styled the deal as “a merger of equals”, implying that shareholders of Altria could be set for a windfall. But they warned that a deal isn't certain:

"There can be no assurance that any agreement or transaction will result from these discussions," the press release said. "Additionally, there can be no assurance that if an agreement is reached, that a transaction will be completed."

A deal would also need the approval of both companies’ boards and shareholders, and regulators.

The move comes at a time when both companies are struggling with declining sales of their traditional product, cigarettes, and a profound change in habits among a new generation of more health-conscious consumers.

Altria in particular has tried to solve that strategic dilemma with investments in vaping company Juul Labs, in which it now owns a 35% stake, and a $1.8 billion investment in Canadian cannabis stock Cronos Group (NASDAQ:CRON).

On Monday, Wells Fargo (NYSE:WFC) analyst Bonnie Herzog had said that Philip Morris) would be the ideal partner for growing Juul Labs’ presence abroad, according to Reuters.

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