There have been rumors from time to time that Philip Morris (PM) may merge with Altria (MO). Wells Fargo has assigned a 70% probability to the merger while Altria was the most mentioned stock in a Bloomberg M&A survey. The two companies separated a decade ago so it should be somewhat surprising, at least on the surface, to hear rumors that the two tobacco giants will reverse their strategy. Nevertheless, as the business conditions have changed in the tobacco industry during the last decade, in this article I will analyze whether Philip Morris is likely to recombine with Altria.

First of all, the main objective behind the split of the two companies was the diversification of the litigation risk. More precisely, the spin-off of the international company made it harder and less profitable to sue the company. Nevertheless, while the litigation risk was elevated a decade ago, it seems to have decreased nowadays.

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