‘PMI-Altria combo increasingly likely’

There is a 70 percent chance that Philip Morris International (PMI) and Altria Group—the parent company of Philip Morris USA—will combine over the next six to 12 months, according to Wells Fargo Securities.

The bank’s analysts cite global consolidation, an increasingly attractive U.S. market and the potential of PMI’s iQOS reduced-risk product as reasons for their assessment.

The U.S. market has become more attractive, according to Wells Fargo, due to the potential for corporate tax reform, the strengthening dollar and the victory of the Republican Party during the recent elections. Republicans are generally regarded as more friendly to business than their Democratic counterparts.

PMI and Altria may also feel pressure to join forces in light of the talks about a tie-up between British American Tobacco and Reynolds American Inc.

Importantly, Wells Fargo said, iQOS would be worth more to PMI if the company it owned Altria. The firm would be able to capture the full margin and accelerate the growth of iQOS in the U.S., given its full control over sales and distribution.

IQOS is a key catalyst for the PMI-Altria combination, according to Wells Fargo. The company continues to believe iQOS has the potential to change the trajectory of smoking, attitudes toward risk, and regulatory constraints on smoking behavior.