Altria Group Inc., the parent of Philip Morris, is close to signing a deal with the Chinese government allowing Marlboro cigarettes to be manufactured and sold in China, The Wall Street Journal reported on Thursday.
The deal would give Philip Morris International a foothold in the world's largest cigarette market, which accounts for nearly a third of all cigarettes smoked worldwide.
Altria shares were up 3 percent in midday trade.
"Gaining a foothold in this market is key, and Marlboro would be the first global brand to penetrate China's monopoly," Christopher Growe, analyst at A.G. Edwards, said in a research note. Growe, who rates Altria shares "buy," said the Chinese cigarette market is four times the size of the U.S. market.
Altria has aggressively looked for growth in new markets like China to counter the shrinking U.S. cigarette market, which has been hammered by health concerns, litigation and legislation aimed at discouraging smoking.
The arrangement being negotiated would allow the Marlboro brand to be made under a licensing agreement by two of China's largest state-run tobacco companies, the Journal said, citing a source familiar with the talks. It said there was also a chance the talks could come to nothing.
Philip Morris may be paid royalties on packs sold, but financial details were not available, the paper said.
A Philip Morris International spokeswoman declined to comment specifically on the report.
"We see China as a very important market offering significant business potential in the long-term, but we don't comment on any specific opportunities or future strategies," the spokeswoman, Nerida White, said.
A deal would suggest the Chinese government may be moving more aggressively to open up the tobacco market. China has been off limits to Western tobacco companies for decades, but in recent years Beijing has taken steps to gradually open the door to foreign players, partly in the hope of helping Chinese tobacco companies break into foreign markets.
Some Marlboro cigarettes are currently sold in China under an import license, White said.
