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PMI to Expand US Operations With Swedish Match, IQOS Moves

Philip Morris International Inc. has increased its plans to enter the US, by offering a sweeter deal for Swedish Match AB, as well as buying the rights to sell IQOS heated tobacco products in the world’s biggest market for smoking alternatives.

October 20, 2022
5 minutes
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Philip Morris International Inc. has increased its plans to enter the US, by offering a sweeter deal for Swedish Match AB, as well as buying the rights to sell IQOS heated tobacco products in the world’s biggest market for smoking alternatives. This move shows a strong commitment from Philip Morris to establish a presence in the US, and signals a potential shift in the tobacco market as a whole.

The Swiss-based tobacco company has raised its offer for the Swedish nicotine pouch maker to 116 kronor ($10.34) per share from 106 kronor. The company hopes that this will finalize a takeover that has been opposed by hedge funds who want a higher bid.

Swedish Match would give PMI a vast distribution network in the US for smoking alternatives like vaping, nicotine pouches and heated tobacco. Philip Morris said the bid is its “best and final” offer, and under Swedish regulations it can’t be raised again. This would be a huge benefit for PMI, as they would be able to reach a much larger audience with their products.

Swedish Match stock was up 2.1% at 12:44 a.m. local time. The move in the share price, which remained below the new offer price, suggested that the new bid could satisfy the funds who’ve opposed the deal. Philip Morris also gained 1.6% in premarket trading in New York.

The value of the revised offer amounts to about $15.8 billion, a 52.9% premium compared to the average price during the last 30 trading days. This speculation began on May 9, the last day before the market speculated about a possible offer for the company.

Analysts at Morgan Stanley believe that the revised offer from Philip Morris International makes it more likely that the deal will close. They believe that the deal is still accretive to PMI and could add 3% to 4% to earnings per share.

Philip Morris has raised its offer for Altria Group Inc., just after the two companies struck a $2.7 billion deal for the IQOS product. This gives the Swiss company a foothold in the US market.

PMI's pursuit of Swedish Match has been challenged by global hedge funds led by Elliott Investment Management, who have bought up more than 25% of the company. At least four of those funds are now poised to tender their stakes, but it is not clear if Elliott, which owns more than 7% of the company, is willing to do the same.

The representative for Elliott declined to comment when asked about the situation.

Philip Morris is considering lowering the threshold for its bid for Swedish Match, Bloomberg News has reported. The Marlboro maker's original bid was conditional on getting more than 90% of Swedish Match.

PMI has said that it will make an announcement by Oct. 28 on lowering the threshold. The company will monitor the results of the tender before deciding, one person familiar with the matter said.

The combination of Altria's IQOS business and Swedish Match could potentially boost PMI's business, paving the way for rollouts of other products in the US like vaping devices. The company has said it's open to further US acquisitions.

Altria announced Wednesday that it has received a $1 billion payment from Philip Morris for the IQOS rights, with the remainder to be paid by July.

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Eric Ng
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