It looks as though the real Marlboro man will be riding into Beijing.
Under the terms of an agreement struck between Altria's (NYSE:MO) Philip Morris cigarette business and China National Tobacco, the Chinese company will gain a license to produce Marlboros in China for 10 years, and the two companies will form a 50/50 joint venture to export tobacco products from China and market Chinese brands around the world.
What's funny about this deal is that people have been buying Marlboros in China for years. Sort of. In a country where brand counterfeiting is rife, Marlboros have apparently been one of the most popular targets, since only a small amount of the genuine article was allowed to be legally imported into China. With this deal, though, real Marlboros will finally be legally available. What's more, given that China National Tobacco is a state-owned company, I wouldn't be surprised to see a renewed interest among authorities in fighting the Marlboro counterfeiting problem.
And China National Tobacco is no fly-by-night operation. The company sold about 1.9 trillion cancer sticks last year -- far surpassing Altria's 761 billion tally. Holding something like 90% of the Chinese market (an exact figure is tough to compute, since there's a fair bit of smuggling and bootlegging), this partner certainly comes into the deal with some heft.
It's tough to say what this agreement will mean to Altria. The licensing fee it will receive for the Chinese Marlboros should represent pure incremental profit. As for the joint venture, we'll see. I suppose there could be some demand for Chinese tobacco brands among the large worldwide Chinese expatriate community, and it's also possible that Altria could benefit from having access to more tobacco-leaf sources.
In any case, I don't see how this is a bad thing. It represents at least a toehold in the Chinese market, and if Chinese smokers acquire a taste for genuine Marlboros, that could be worth something to Altria down the road. In the meantime, I like the cash flow that Altria produces. But Chinese deal or no, I'm not a huge fan at today's prices.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
