Stamford-based PMI pays $2.7 billion for US heated tobacco rights

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STAMFORD – Tobacco giant Philip Morris International, which plans to open its new headquarters in downtown Stamford next month, announced this week that it would pay $2.7 billion to reclaim US marketing rights of its IQOS heated tobacco products.

The deal with Altria Group, which includes an upfront payment of $1 billion and takes effect in April 2024, reflects the growing importance of smoke-free products in PMI’s portfolio. Smoke-free offerings accounted for 30% of PMI’s net revenue in the third quarter of this year, and the company aims to generate more than 50% of net revenue from smoke-free businesses by the end of 2025.

“Today marks another historic milestone on our journey toward a smoke-free future,” PMI chief executive Jacek Olczak said in a statement. “This agreement grants PMI full commercialization rights to IQOS in the United States within approximately 18 months and sets a clear path to realizing the product’s full potential in the world’s largest smoke-free market, leveraging leveraged PMI’s full strategic and financial commitment to the success of IQOS. The deal also avoids what could have been an uncertain and lengthy legal process that would have severely hampered the rapid rollout of IQOS in the United States.

IQOS products, which are sold in 71 countries, involve the use of a portable device to heat tobacco sticks that do not burn or produce smoke when inhaled. Through an exclusive license provided by PMI – which was spun off from Altria in 2008 – Altria sold IQOS from 2019 to 2021 in states including Georgia, North Carolina, South Carolina and Virginia. Altria stopped selling IQOS products last year following the U.S. International Trade Commission’s ruling against the company in a patent case brought by RJ Reynolds Tobacco Co.

In addition to the patent disagreement with RJ Reynolds, a dispute over IQOS has arisen between PMI and Altria because PMI officials believe Altria has failed to meet agreed-upon sales targets for IQOS that would allow Altria to expand its exclusive rights in the United States. Altria disputes this assertion.
In another move to grow its smoke-free business, PMI is looking to buy another tobacco company, Swedish Match. He raised his offer for each Swedish Match share from 106 to 116 Swedish crowns, the equivalent of about $10. The appreciation of the dollar against the krone means that the total value of the acquisition would still total around $16 billion.

If it completes the acquisition of Swedish Match, PMI will use Swedish Match’s sales force and distribution network to help sell IQOS in the United States. But the company’s “smoke-free” strategy in the United States does not depend on this agreement.

“The path to market is clear given the well-established distribution and retail channels in the United States, and we are well prepared to proceed independently with the development of IQOS and the rest of our smoke-free portfolio in Swedish Match’s offer fails,” Olczak said.
While PMI officials say heated tobacco is less harmful than cigarettes, they acknowledge that smokeless options are not harmless. Among the risks, IQOS products deliver nicotine, which is addictive.

At the same time, cigarettes are still a huge source of income for PMI. In the first nine months of 2022, the company shipped around 468 billion cigarettes globally, including Marlboro, L&M, Chesterfield, Parliament and Philip Morris brands, roughly the same number as the period total. comparable in 2021. The company does not sell cigarettes. in the USA

In the first nine months of 2022, PMI shipped approximately 77 billion heated tobacco sticks, up 11% year-over-year.

PMI officials recognize the enormous public health impact of tobacco, which kills more than 8 million people each year, according to the World Health Organization. But they argue that stopping cigarette production immediately would be counterproductive.

“If we pulled out, it’s not that the market would disappear on its own; others would come in and fill that space,” Deepak Mishra, president of the Americas region for PMI, said at a press conference last November at Stamford’s new headquarters. “The others in this case very often include illicit trade, which is a loss of revenue for the government and probably not the good quality of the products for the consumers.”

Ranked No. 110 on this year’s Fortune 500 list of America’s largest companies, PMI announced last year that it would move its headquarters from midtown Manhattan to downtown Stamford. The first 100 employees are expected to start working in the new offices at 677 Washington Blvd., during the week of November 10.

pschott@stamfordadvocate.com; twitter: @paulschott

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