NEW YORK – Chatter is building behind Big Tobacco getting bigger: At least one analyst has laid out an argument for a combining of forces among Philip Morris International (PMI) and Altria Group Inc.
The likelihood of New York-based PMI buying Richmond, Va.-based Altria has a “70% probability in the next six to 12 months,” according to Bonnie Herzog, managing director for beverage, tobacco and convenience-store research for Wells Fargo Securities LLC, New York. In a recent newsletter, she cites several reasons ...
The first reason is a favorable setting for U.S. tax reform. The Republican sweep of the 2016 elections has given hope for favorable new corporate tax laws.
The pending merger of London-based British American Tobacco and Winston-Salem, N.C.-based Reynolds American Inc. puts pressure on the development and go-to-market strategies of reduced-risk products.
The value of iQOS goes up. PMI will gain higher value and better margin with its heat-not-burn iQOS product by better control over U.S. sales and distribution.
PMI will also achieve a more efficient rollout of iQOS as a merged entity.
Calling iQOS a “key catalyst” for the merger, Herzog said iQOS “has the potential to change the trajectory of smoking, attitudes toward risk and the regulatory constraints on smoking behavior.”
Conversion rates of 60% to 70% in other key markets indicate iQOS can reach “critical mass” of 2% to 3% of smoker share within a year or two in any given market.
Others agree. “With the current regulatory climate and a potential U.S. administration that is seen as more business-friendly, the time may be right for Altria and [PMI] to join as one and streamline the sales of tobacco products globally,” said Christopher Davis, research analyst for Seeking Alpha, New York.
Officials with Altria declined comment on the potential move, while officials with PMI did not comment by press time.
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