Two of the largest tobacco companies, Philip Morris International Inc and Altria Group Inc are talking of an all-stock merger in an attempt to reign over the electronic-cigarette market.
It has been a long speculation on when these companies would merge because of the declining cigarette sales.
Cigarette sales volumes went down 4.5 percent on an adjusted basis in 2018.
The e-cigarette market, on the other hand, was $11bn worth in 2018 with a forecast growth of more than eight percent yearly over the next two years.
Bernstein analyst Callum Elliott said there's "merit in a re-merger with disruption facing the world of tobacco."
He added that the combination of the two companies resulting in a "Philip Morris 2.0 could present a united front" on the next-generation of products like IQOS.
IQOS are devices that heat tobacco-filled sticks wrapped in paper. The nicotine comes up in aerosol form unlike e-cigarettes that vaporizes a nicotine-filled liquid; exactly what the Juul device does .
IQOS is Philip Morris-owned while Altria has a 35 percent stake in Juul Labs Inc.
However, some analysts are questioning the rationale for the reunion.
Altria came from Philip Morris. Rebranding to Altria happened in 2003 because Philip Morris wants it to be known that its business portfolio doesn't consist only of Philip Morris USA and Philip Morris International.
At that time, Philip Morris has an 84% stake in Kraft, a confectionery, food and beverage company.
Philip Morris International split from Philip Morris USA to save on cigarettes getting exported from the US.
Thus, one company became two.
Still, once an agreement is reached, this merger would result in the fourth-largest deal ever made.
Though Philip Morris just got a US Food and Drug Administration approval to sell IQOS this April, Altria had been selling IQOS in America under a licensing agreement that includes royalty payments to Philip Morris.
This IQOS licensing agreement is where the deal talks stemmed from. A merger would just simplify this.
Likewise, Altria can use Philip Morris's global footprint in marketing Juul.
Wells Fargo analyst Bonnie Herzog said a merger would result in a leading global nicotine company with improved cash flow and a faster market growth for both Juul and IQOS.
Philip Morris' annual revenue is nearly $30bn while Altria earned $20bn in 2018.
A merger may complicate some things because there's a clause in the deal being made that will not allow Altria from owning or working with competitors in the e-vapor business.
A source familiar with the matter also said that one of the terms in the merger getting discussed is Altria shareholders would have no premium and would own only 41% to 42% of the combined company while the remaining shares will be owned by Philip Morris shareholders.
However, when it comes to the board of directors of the possible merger, the source says it will get split evenly between Philip Morris and Altria.
If all goes well, there will be an agreement by the end of September.
However, both companies said there is no assurance that a deal will be reached.
