Philip Morris International Inc. and Altria Group Inc. are in talks for an all-stock merger, potentially reuniting the tobacco giants after more than a decade in a deal aimed at dominating the fast-growing e-cigarette market.

Altria’s shares rose over eight per cent in early trading, while Philip Morris fell six per cent. A merger of the two would create a company with a market value of more than $200 billion US.

Analysts have long speculated that the companies would merge, given mounting pressure from falling cigarette sales and the need to invest in alternative revenue streams.

Industry-wide cigarette sales volumes tumbled 4.5 per cent on an adjusted basis in 2018, according to analysts at Cowen. In contrast, the e-cigarette market was worth about $11 billion in 2018 and is expected to grow at more than eight per cent annually over the next five years, according to research firm Mordor Intelligence.

Heated tobacco

In April, Philip Morris won approval to sell a heated tobacco product called IQOS in the United States, a major victory for a company looking to move beyond traditional cigarettes.

Unlike combustible cigarettes, the IQOS devices heat tobacco-filled sticks wrapped in paper, generating an aerosol that contains nicotine. They are different from e-cigarettes such as the popular Juul device, which vaporizes a nicotine-filled liquid.

Altria, which owns a 35 per cent stake in Juul Labs Inc., already markets IQOS as part of a licensing agreement with Philip Morris.

In a note to clients on Monday, Wells Fargo analyst Bonnie Herzog said Juul will have an ideal partner for its international expansion in Philip Morris.

Herzog added that Philip Morris could speed up the growth of IQOS in the United States if it had full control over sales and distribution.

Philip Morris has annual revenue of nearly $30 billion and Altria generated about $20 billion last year. Both companies said there could be no assurance if a deal would be reached.

Any deal would need to be approved by the companies’ respective boards, shareholders and regulators, as well as meeting other conditions.