Altria sells U.S. IQOS rights to Philip Morris for $2.7 billion

(Reuters) -U.S. cigarette maker Altria Group Inc said on Wednesday industry peer Philip Morris International Inc has agreed to pay $2.7 billion for the exclusive right to sell IQOS heated tobacco products in the United States.

IQOS is a smokeless tobacco heating device that was developed by Philip Morris and sold in the United States by Altria until the U.S. trade regulator banned the import and sale of the product last year following patent claims from rival R.J. Reynolds.

Philip Morris is looking to overturn the ban.

Altria, which sells cigarette brands like Marlboro in the United States, was spun off from Philip Morris International in 2008 when the company wanted to separate its U.S. and overseas businesses.

Altria said one of its subsidiaries had an option to extend the IQOS contract until April 2029 after it had reached certain milestones. However, Philip Morris disagreed with Altria’s position.

“The parties were unable to reach a long-term agreement and decided to enter into the Agreement to transition and ultimately conclude their relationship,” Altria said in a statement.

Philip Morris, which reports quarterly results later on Thursday, aims to resume supply of IQOS products in the United States by the first half of 2023.

Altria still holds the rights to sell IQOS in the United States until May 2024, after which it transitions to Philip Morris.

“We are ready to invest behind IQOS to bring it to market at scale across the U.S.,” Philip Morris Chief Executive Officer Jacek Olczak said.

Altria said it has already received $1 billion from Philip Morris and will receive the remainder by July 2023.

Separately, Philip Morris raised its buyout offer for Swedish Match AB in a last-ditch effort to get shareholder support for its $16 billion move into the fast-growing market for cigarettes alternatives.

(Reporting by Anirudh Saligrama, Deborah Sophia, Abinaya Vijayaraghavan and in Uday Sampath in Bengaluru; Additional reporting by Juby Babu; Editing by Stephen Coates and Christopher Cushing)