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Update: Tobacco giants Philip Morris and Altria confirm merger talks

Putting an end to speculation, Philip Morris International (NYSE: PM) Tuesday confirmed it is in merger talks with rival tobacco company Altria Group (MO). Meanwhile, a statement issued by Altria said it is pursuing a merger deal with Philip Morris. The planned all-stock deal is currently in the discussion stage.

Earlier, there were unconfirmed reports that the companies are planning to become a single entity, which sent Philip Morris’ stock falling during Monday’s trading session. The stock closed the session down about 4%. On the other hand, Altria shares traded sharply higher early Tuesday, after closing the last session higher.

Also read: Altria Group Q2 2019 Earnings Call Transcript

While the merger theory has been doing the rounds for a long time, Altria’s interest in smoke-free cigarette brand iQOS – developed recently by Philip Morris – gives it a new perspective.

Confirming its outperform rating on Philip Morris and reiterating the $102 price target, Wells Fargo in a research note released yesterday attributed the negative stock movement to the Altria deal.

Philip Morris (PM) surprises by reporting a growth in Q2 EPS

These days, the general market sentiment has not been in favor of Philip Morris, mainly due to lack of transparency in its strategy to move away from conventional cigarettes to smokeless alternatives. Recent studies have found that most of the smoke-free tobacco products are not as safe as they are made out to be.

However, recent data show that Philip Morris’ shift to smokeless products has been well received so far. Last month, the company reported in-line revenues for the second quarter, with the only segment that recorded year-over-growth being Heated Tobacco.

Related: Philip Morris Q2 2019 Earnings Call Transcript

Shares of Philip Morris traded down 6% during Tuesday’s early hours, after closing the previous session lower. Altria was up 8% soon after the session started.

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