The recent double digit decline in MO's
stock price has one interesting aspect. It now makes a potential
takeover of MO by PM much more financially viable. It is still unlikely. . .
Yeah, I was thinking the same thing. With MO "on sale", acquisition of MO by PM seems slightly plausible now than in say the last six months. Perhaps pending tax reform by the Trump administration may help there also. . .not sure. In any case, I'm also not holding my breath for PM to buy MO (let alone the converse).
Of course, you know whom, quickly said the same thing, though I don't see her touting that "75% chance of merger this year" figure any more:
13:13 ET - Wells Fargo thinks the FDA's surprise policy shift on tobacco Friday increases the likelihood of a takeover by Philip Morris International
(PM) of Altria (MO). The agency's move to promote reduced-risk products
and reduce nicotine in cigarettes to nonaddictive levels bodes well for
PM's bid to sell its heat-not-burn product IQOS in the US in
partnership with MO, analyst Bonnie Herzog writes. Timing of a potential
merger "could be soon given the multiple spread between the two is the
widest it's been in over 6 years," she says, adding "MO will ultimately
be a big beneficiary of these regulatory changes."
With respect to the latter, without knowing what these putative regulatory changes actually are, I don't see how its possible to know that MO will be a big beneficiary, though I do agree that in GENERAL, increased regulation tends to work to the BENEFIT of big tobacco such as MO. Back on the FDA:
I am in complete
agreement that this announcement is political theater. The question is
why is it so transparently obvious political theater, and what is the
real purpose/goal underlying it?
I don't think its "so obvious" to anyone who isn't closely attuned to tobacco issues/regulation. . .which is to say 99.9% of the public and 99% of the political class. That's the point of political theater. . .its for those who don't really know what's going on.
So what actually IS going on? I don't know for sure, but I can give an educated guess. The FDA understands that vapor and especially newer "heat not burn" products (not necessarily just PM/MO's IQOS) are potentially serious "game changes" for the tobacco industry.
For the last several years in particular, its really been "wild west" for vapor. There is minimal
regulation, even less enforcement, and I think the FDA realizes that its
previously imminent pending effective ban on non-grandfathered vapor
products simply wasn't good policy. So this is the first step towards a
better and more comprehensive policy towards vapor, but also towards the other emerging products. The FDA is trying to establish some unifying principles to regulate ALL of them (including cigarettes too) and this was the opening move to indicate that it intends to implement some sort of comprehensive regulatory plan.
So what has changed? Not much, as none of the factions really has won or lost anything of lasting substance yet.
With respect to cigarettes, right now zero has changed, and I wouldn't expect any changes for years.
But until this announcement, the US domestic vapor industry was running in "panic" mode, fearing with good reason that the FDA was effectively going to shut it down entirely this year. Whether or not a five year FDA reprieve is "lasting" is debatable, but I think its still a significant "win" for vapor. In the meantime, five more years gives plenty of time for vapor industry consolidation and for the strongest players in that niche to try and put together something that can pass FDA muster.