Philip Morris International (PMI) and Altria have called off talks to reunite their businesses in the face of investor pushback and a regulatory crackdown on vaping in the United States.
Altria’s $12.8 billion investment in e-cigarette manufacturer Juul has soured as regulators in the United States and other markets have started restricting flavored vapor products in response to a series of vaping-related deaths and hospitalizations and concerns about increased youth vaping.
Walmart, the world’s largest retailer, announced last week it would stop carrying e-cigarettes altogether.
“While we believed the creation of a new merged company had the potential to create incremental revenue and cost synergies, we could not reach agreement,” said Howard Willard, Altria’s chairman and CEO.
“After much deliberation, the companies have agreed to focus on launching IQOS in the U.S. as part of their mutual interest to achieve a smoke-free future,” said PMI CEO Andre Calantzopoulos.
IQOS is the only heated tobacco product with premarket authorization from the U.S. Food and Drug Administration (FDA). PMI has also submitted a modified risk tobacco product application for IQOS, which the agency is still reviewing.
Global data, based on four years of use, show that IQOS is not significantly appealing to youth or to nonsmokers, according to PMI.
The potential for Juul and iQOS to dominate the world’s biggest vapor markets was seen as central rationale of a deal when the merger talks were announced last month. It would have created an industry heavyweight with a combined market value of $187 billion, triple its closest rival, British American Tobacco.
However, some investors were skeptical of the synergies the deal would generate and a steady rise in number of vaping-related deaths and illnesses reported in the U.S. may also have changed the companies’ thinking.
“It appears that both management teams clearly listened to shareholder feedback and certainly couldn’t ignore the barrage of negative headlines,” wrote Bonnie Herzog, managing director of equity research at Wells Fargo.
Philip Morris’ stock jumped more than 6 percent after the merger talks were canceled, bringing its market value to about $118 billion. Shares of Altria were down 2.4 percent Wednesday afternoon, valuing the company at around $74 billion.
Altria spun PMI off in 2008, remaining focused mostly in the U.S. through its Marlboro cigarettes, while PMI has focused on selling cigarettes outside the U.S.