Philip Morris International and Altria ended merger talks to create a $200bn tobacco giant after the two sides failed to reach a deal amid investor doubts and a regulatory push in the US against vaping products.

The news came as Juul Labs, in which Altria took a 35 per cent stake in December 2018 for $12.8bn, announced an abrupt change of chief executives and changes to its advertising and lobbying policies in the midst of profound uncertainty about the outlook for e-cigarettes in the US market it leads.

A person familiar with the situation said PMI decided to walk away from the deal after it became apparent the US government crackdown on vaping could negatively impact a deal given Altria’s stake in Juul.

André Calantzopoulos, PMI’s CEO, said the two companies had decided to focus on the US launch of Iqos, PMI’s heated tobacco product, which, the companies noted, had been authorised by the US Food and Drug Administration following a “rigorous science-based review” and was not an e-vapour product.

Juul said Kevin Burns had decided to step down as chief executive and that KC Crosthwaite, Altria’s chief growth officer, would replace him.

Juul added it would suspend all its broadcast, print and digital product advertising in the US and refrain from lobbying the Trump administration on its moves to tighten regulation in the wake of an outbreak of vaping-related lung illnesses that have been tied to several deaths.

The PMI-Altria deal under discussion was seen as a way for the companies to spread their bets on the future of nicotine consumption, uniting the largest brand in the declining US cigarette market with Juul, which has seized a 70 per cent share of US e-cigarette sales, and the nascent Iqos.

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But the deal ran into immediate hostility from both companies’ investors, with PMI shareholders expressing concern about the Lausanne-based company becoming exposed to the declining, litigation-wracked US cigarette market and Altria shareholders questioning a deal which would have offered no control premium.

In pre-market trade on Wednesday in New York, shares in PMI jumped 6.8 per cent and Altria rose 2.9 per cent.

More to follow.

Via Financial Times