Philip Morris International has struck a $16 billion deal to buy Swedish Match, as the tobacco company makes its biggest bet yet on alternatives to cigarettes.
Swedish Match is a leader in so-called snus, or oral nicotine pouches, which originated in its domestic market but have become increasingly popular outside Scandinavian countries.
The Stockholm-based company owns Zyn, the largest brand of nicotine pouches in the United States, increasing the deal’s appeal for PMI, which hasn’t had a significant presence in America for more than a decade. Swedish Match’s tobacco-free snus sales grew more than 50% last year in the US and Scandinavia.
Under terms of the deal announced on Wednesday, PMI said it would pay SKr106 ($10.57) per share for Swedish Match, a 39% premium to the May 9 closing price, before talks between companies do not become public.
The board of directors of Swedish Match, which has about $1.3 billion in net debt, has recommended that its shareholders accept the offer. Shares rose nearly 9% to SKr 103.50 at noon in Stockholm.
“If you look at why PMI would buy Swedish Match, it would be for this US push opportunity,” said Jonathan Fell, a partner at investment house Ash Park Capital, which owns PMI shares.
PMI has its roots in 2008, when the American company Altria separated its international activities. Its biggest smokeless product is the IQOS heated tobacco device, which Altria has the rights to distribute in the United States.
“The other interesting angle is what this means for Altria,” Fell said, adding that the company is in conflict with its long-term business partner over future IQOS distribution rights.
“So it’s clear that something has gone wrong in this relationship, and if this deal goes through, it will see them become competitors. [in the US]added Fell, referring to the nicotine pouch brand On!, in which Altria has a stake.
Best known for selling Marlboro outside the United States, PMI has been the most aggressive among traditional cigarette makers in its bid to gain market share in so-called next-generation products, including vapes and tobacco devices. heated.
Its drive to reinvent itself and ‘smoke out the world’ has proved controversial, with a £1billion deal to buy Vectura, a UK developer of asthma inhalers, drawing heavy criticism.
Swedish Match and PMI have collaborated before, including a short-lived venture in 2009 designed to “market Swedish snus and other smokeless tobacco products worldwide”.
It was closed in 2015 as demand growth was taking longer than expected, and Swedish Match launched the first tobacco-free snus product the following year.
Some shareholders have criticized Swedish Match for not using its leading position in oral tobacco, as well as its global distribution channels for matches and lighters, to launch other smoke-free products.
John Hempton, founder of Bronte Capital, wrote in a blog post before the deal was announced that he was “furious” about the sale of Swedish Match.
“Pair [the distribution channel into almost everywhere in the world where cigarettes are sold] with a decent vape product and you would immediately have one of the biggest vape companies in the world[es]”, he said, adding that “there should be a one-upmanship”.
Jefferies analyst Owen Bennett said in a note that “if we were a shareholder of Swedish Match, we would want to know if the company probed the counterbidders.”
On Wednesday, PMI did not detail any cost savings from the deal, but said its plans “do not include any material changes to Swedish Match’s operating sites, or its management and employees, including their terms of employment.
Jacek Olczak, chief executive of PMI, said the acquisition “would open up significant platforms for growth in the United States and internationally.”