By Siddharth Cavale and Nivedita Balu
(Reuters) – Tobacco giants Philip Morris International <PM.N> and Altria Group <MO.N> have scrapped merger talks as Altria-backed e-cigarette maker Juul Labs sank deeper into crisis and said it would suspend advertising in the United States.
The abandonment of the talks, announced on Wednesday, comes at a time when e-cigarettes and vaping are facing intense regulatory and health scrutiny. Juul, in which Altria has a 35% stake, faces a U.S. ban on some products and said its CEO Kevin Burns was stepping down, and that it would suspend all broadcast, print and digital advertising in the United States.
Philip Morris and Altria, announcing the end of their talks, said they would instead focus on the joint launch of tobacco-heating product iQOS in the United States.
“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,” Philip Morris CEO André Calantzopoulos said.
The iQOS heat-not-burn product is not a typical vaping device but instead heats packages of ground-up tobacco into a nicotine-filled aerosol.
Juul’s devices, though, vaporize a liquid containing nicotine, and such e-cigarettes have borne the brunt of the regulatory crackdown.
The deal would have seen the tobacco companies reuniting a decade after their split and creating an industry heavyweight.
“We aren’t all that surprised given the length of negotiations and the litany of (negative) FDA/health headlines throughout,” Wells Fargo analyst Bonnie Herzog wrote in a note. “It appears to us the talks fell apart over Juul.”
Shares in Philip Morris rose 6.5% in premarket trading, while those of Altria were up 3.7%.
Rivals British American Tobacco <BATS.L> and Imperial Brands <IMB.L> rose between 2% as 3% in afternoon trading on Wednesday’s announcements.
(Reporting by Siddharth Cavale and Nivedita Balu in Bengaluru; Editing by Saumyadeb Chakrabarty and Pravin Char)