Altria, Philip Morris Should Become One Company Again: Real M&A
2015-07-28 17:32:14.531 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Tara Lachapelle
(Bloomberg) -- It may be time to put Altria Group Inc. and
Philip Morris International Inc. back together.
The world’s most valuable tobacco companies split apart
more than seven years ago to set free the faster-growing
overseas operations while the U.S. business was entangled in
smoker lawsuits. But things have changed since then, and the
rationale that justified the separation no longer exists.
Altria, the $108 billion maker of Marlboro cigarettes that
will release second-quarter results Wednesday, has largely put
the legal morass behind it. And Philip Morris, its $133 billion
international counterpart, has lost its luster as cigarette
demand wanes in Europe. Both stocks are now trailing rival
Reynolds American Inc., which in June completed its $28 billion
acquisition of Lorillard Inc., owner of the Newport brand.
As a result of that merger, the industry is consolidated to
a point where the only remaining takeover options for Altria and
Philip Morris are probably one another. They’ve already begun
working more closely together in recent months, joining forces
to develop new products such as electronic-vapor cigarettes.
“This could be a step toward an eventual recombination,”
Ken Shea, an analyst for Bloomberg Intelligence, said in a phone
interview. “Being geographically diverse is probably a good
thing for a tobacco company now. Philip Morris is the best
option for Altria to team up with.”
Spinoff Rationale
Iro Antoniadou, a spokeswoman for Philip Morris, said that
“many of the reasons articulated by the board at the time of
the spinoff are still relevant today.” She declined to comment
on whether Philip Morris is considering a merger with Altria, as
did Bill Phelps, a spokesman for Altria.
“Altria spun off Philip Morris International so that each
business could focus exclusively on their own opportunities and
to address their own challenges with the ultimate goal of
building long-term shareholder value,” Phelps said by phone.
“It’s important to look at the results Altria has achieved
since the spinoff.”
Altria’s share price has more than doubled since Philip
Morris began trading separately in March 2008. It is projected
to climb less than 6 percent over the next 12 months, according
to analysts’ estimates compiled by Bloomberg.
As smoking rates diminish in most regions of the world,
growth is hard to find. Becoming one company again would allow
Altria and Philip Morris to fuse their research and development
efforts and share resources.
It would also make Altria a global entity once again, while
giving Philip Morris renewed exposure to the U.S., where
cigarette makers have strong pricing power. The three most
popular brands -- Marlboro, Newport and Camel -- are owned by
two competitors: Altria, the U.S. market leader, and Reynolds,
which is No. 2.
Activist Bait
With so few of Altria’s and Philip Morris’s shares owned by
insiders, neither company is safe from activist investors,
should any take interest. Officers and directors at Altria own
just 0.2 percent of the stock. The figure is 0.3 percent at
Philip Morris, data compiled by Bloomberg show.
While the companies’ size could be a deterrent -- a 5
percent stake in Altria would cost more than $5 billion -- some
activists have had success taking even small positions in large
companies. Nelson Peltz owns just 1.25 percent of PepsiCo Inc.
yet has had influence as an activist shareholder at the $141
billion soda giant.
Investors also tend to get behind activist campaigns when a
stock is underperforming, as Philip Morris’s has. The share
price has fallen 4.9 percent in three years, while the Standard
& Poor’s 500 Index added 55 percent. Altria gained 52 percent in
that span.
“There really is no blockade from an ownership
standpoint” at Altria and Philip Morris, Shea said. “It could
allow activists to challenge the status quo.”
For Related News and Information:
Broader Altria-Philip Morris R&D Collaboration May Lead to M&A
Low Philip Morris, Altria Insider Stakes May Invite Activists
U.S. Tobacco Industry Is Enjoying Return to ‘Old Days,’ CEO Says
Reynolds’s Shrinking Sales Spark Tobacco Takeover Talk: Real M&A
Bloomberg Intelligence - Tobacco Industry: BI TOBC <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman
2015-07-28 17:32:14.531 GMT
(For a Real M&A column news alert: SALT REALMNA <GO>.)
By Tara Lachapelle
(Bloomberg) -- It may be time to put Altria Group Inc. and
Philip Morris International Inc. back together.
The world’s most valuable tobacco companies split apart
more than seven years ago to set free the faster-growing
overseas operations while the U.S. business was entangled in
smoker lawsuits. But things have changed since then, and the
rationale that justified the separation no longer exists.
Altria, the $108 billion maker of Marlboro cigarettes that
will release second-quarter results Wednesday, has largely put
the legal morass behind it. And Philip Morris, its $133 billion
international counterpart, has lost its luster as cigarette
demand wanes in Europe. Both stocks are now trailing rival
Reynolds American Inc., which in June completed its $28 billion
acquisition of Lorillard Inc., owner of the Newport brand.
As a result of that merger, the industry is consolidated to
a point where the only remaining takeover options for Altria and
Philip Morris are probably one another. They’ve already begun
working more closely together in recent months, joining forces
to develop new products such as electronic-vapor cigarettes.
“This could be a step toward an eventual recombination,”
Ken Shea, an analyst for Bloomberg Intelligence, said in a phone
interview. “Being geographically diverse is probably a good
thing for a tobacco company now. Philip Morris is the best
option for Altria to team up with.”
Spinoff Rationale
Iro Antoniadou, a spokeswoman for Philip Morris, said that
“many of the reasons articulated by the board at the time of
the spinoff are still relevant today.” She declined to comment
on whether Philip Morris is considering a merger with Altria, as
did Bill Phelps, a spokesman for Altria.
“Altria spun off Philip Morris International so that each
business could focus exclusively on their own opportunities and
to address their own challenges with the ultimate goal of
building long-term shareholder value,” Phelps said by phone.
“It’s important to look at the results Altria has achieved
since the spinoff.”
Altria’s share price has more than doubled since Philip
Morris began trading separately in March 2008. It is projected
to climb less than 6 percent over the next 12 months, according
to analysts’ estimates compiled by Bloomberg.
As smoking rates diminish in most regions of the world,
growth is hard to find. Becoming one company again would allow
Altria and Philip Morris to fuse their research and development
efforts and share resources.
It would also make Altria a global entity once again, while
giving Philip Morris renewed exposure to the U.S., where
cigarette makers have strong pricing power. The three most
popular brands -- Marlboro, Newport and Camel -- are owned by
two competitors: Altria, the U.S. market leader, and Reynolds,
which is No. 2.
Activist Bait
With so few of Altria’s and Philip Morris’s shares owned by
insiders, neither company is safe from activist investors,
should any take interest. Officers and directors at Altria own
just 0.2 percent of the stock. The figure is 0.3 percent at
Philip Morris, data compiled by Bloomberg show.
While the companies’ size could be a deterrent -- a 5
percent stake in Altria would cost more than $5 billion -- some
activists have had success taking even small positions in large
companies. Nelson Peltz owns just 1.25 percent of PepsiCo Inc.
yet has had influence as an activist shareholder at the $141
billion soda giant.
Investors also tend to get behind activist campaigns when a
stock is underperforming, as Philip Morris’s has. The share
price has fallen 4.9 percent in three years, while the Standard
& Poor’s 500 Index added 55 percent. Altria gained 52 percent in
that span.
“There really is no blockade from an ownership
standpoint” at Altria and Philip Morris, Shea said. “It could
allow activists to challenge the status quo.”
For Related News and Information:
Broader Altria-Philip Morris R&D Collaboration May Lead to M&A
Low Philip Morris, Altria Insider Stakes May Invite Activists
U.S. Tobacco Industry Is Enjoying Return to ‘Old Days,’ CEO Says
Reynolds’s Shrinking Sales Spark Tobacco Takeover Talk: Real M&A
Bloomberg Intelligence - Tobacco Industry: BI TOBC <GO>
Real M&A columns: NI REALMNA <GO>
Top deal stories: DTOP <GO>
To contact the reporter on this story:
Tara Lachapelle in New York at +1-212-617-8911 or
tlachapelle@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman