Philip Morris & Altria Join Forces - Analyst Blog

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Two leading tobacco makers - Philip Morris International ( PM ) and Altria Group Inc. ( MO ) - are poised to combine their marketing powers to ramp up the distribution of their unconventional cigarettes.

While Altria sells Marlboro exclusively in the U.S., Philip Morris sells those everywhere else.

To complement each other, Altria and Philip Morris entered into a distribution agreement. Under the deal, Philip Morris will market Altria's MarkTen e-cigarettes internationally and the latter will distribute two of Philip Morris' heated tobacco products in the United States. The heated tobacco products are claimed to be less harmful than conventional tobacco products as they heat the nicotine instead of burning them.

E-cigarettes are becoming increasingly popular, especially among youngsters. These battery-powered devices turn a nicotine-based liquid into vapor. They were considered less harmful than tobacco products and therefore the major tobacco players capitalized on them. Most of the tobacco biggies including Lorillard Inc. ( LO ) and Reynolds American Inc. ( RAI ) are geared to capture share in the e-cigarette category.

In Nov 2013, Philip Morris announced that it would foray into the e-cigarette business late 2015. Moreover, the company has announced that it will accelerate thelaunch of a set of 'Next Generation Product' (NGP) in 2015, which aims to attract adult consumers while reducing the risks related to tobacco products.

Altria forayed into the popular category of e-cigarettes with the launch of MarkTen e-cigarettes in lead markets in Indiana in August. MarkTen is different from other e-cigarettes, as it can be used both as a disposable as well as a rechargeable device. This flexibility is expected to help the brand quickly gain market share.

The collaboration comes amid growing awareness against tobacco products. Last week, the European Union (EU) governments and the European parliament reached a settlement to draft a legislation which decided that e-cigarettes, with nicotine strength of more than 20 milligrams per milliliter, would need authorization as a medicine if they can be proven to have some form of curative or preventive action.

Otherwise, they will not be shelved in the shops. E-cigarettes below this level will be categorized as conventional tobacco products and the same regulations will be applicable to them if their curative properties cannot be proved.

We now await the Food and Drug Administration's (FDA) decision on e-cigarettes. The anti-smoking activists have requested the FDA to impose restrictions on e-cigarettes.

Altria and Philip Morris have also decided to partner on a regulatory engagement related to the products. The two companies will also work on gaining shares as well as improving existing versions for the products.



LORILLARD CO (LO): Free Stock Analysis Report

ALTRIA GROUP (MO): Free Stock Analysis Report

PHILIP MORRIS (PM): Free Stock Analysis Report

REYNOLDS AMER (RAI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: EU , LO , MO , PM , RAI

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