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05/11/2022

Philip Morris International Makes $16B Offer for Swedish Match

The Swedish Match board recommends its shareholders accept the bid.
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Philip Morris International Logo

RICHMOND, Va. — Philip Morris International Inc. (PMI) and Swedish Match are one step closer to a tie up.

On May 11, PMI made a $16-billion bid for Swedish Match AB. The price offered for the shares represents a premium of 39.4 percent compared to the closing share price on May 9, according to PMI.

In response, the Swedish Match board of directors recommended the company's shareholders accept the offer.

"We are pleased to announce this exciting next step in Philip Morris International's and Swedish Match's trajectory toward a smoke-free future. Underpinned by compelling strategic and financial rationale, this combination would create a global smoke-free champion — strengthened by complementary geographic footprints, commercial capabilities and product portfolios — and open up significant platforms for growth in the U.S. and internationally," said PMI CEO Jacek Olczak.

"Swedish Match's dedicated employees and management have steadfastly pursued the company's vision of a world without cigarettes, while delivering very strong results. We look forward to building upon this success and joining forces to accelerate our shared smoke-free mission," Olczak added.

According to PMI, the two tobacco companies share a mutual vision of a world without cigarettes and a strong commitment to developing, scientifically substantiating, and responsibly commercializing smoke-free products that are less harmful than cigarettes.

"PMI values how Swedish Match has relentlessly pursued tobacco harm reduction through its range of smoke-free products; received authorizations for its products via strict regulatory pathways in the U.S.; and reshaped the public health environment in countries such as Sweden and Norway," the company said in announcing the offer.

In a statement, Swedish Match said its board analyzed PMI's offer and concluded that its terms recognize the company's long-term growth prospects.

Benefits of the Deal

The combination with Swedish Match, according to PMI, would position the company to:

  • Create a comprehensive smoke-free product portfolio globally, underpinned by a leading research and development engine for science, innovation and growth through the companies' complementary capabilities;
  • Directly enter and compete in the large, attractive and growing U.S. smoke-free market by further supporting and developing Swedish Match's oral nicotine portfolio in the United States and leveraging Swedish Match's substantial operational platform in the U.S. to unlock commercial opportunities across other smoke-free categories in the coming years; and
  • Drive accelerated global expansion opportunities for Swedish Match's oral nicotine products through PMI's international commercial infrastructure and financial resources.

Swedish Match AB is based in Stockholm, with U.S. headquarters in Richmond. Production is located in seven countries, with the majority of the group sales coming from the United States and Scandinavia. It has a strong presence in the U.S. nicotine pouch category with its ZYN branded offering.

"While the companies did not quantify potential revenue synergies, the strategic rationale of the transaction make sense to us, as Swedish Match derives a majority of its sales (67 percent) and profits (74 percent) from smoke-free products. This compliments PMIs smoke-free exposure (30 percent of revenues), and would further PMI's aspiration to generate over 50 percent of sales from smoke-free products in 2025," said Vivien Azer, director and senior research analyst at Cowen & Co.

Swedish Match also gives PMI a scalable platform in the U.S. as well as infrastructure and sales force — which PMI could use to market its heat-not-burn product, IQOS, after its agreement with The Altria Group Inc. expires in April 2024, she said.

IQOS was first introduced to the U.S. market in October 2019. It is an electronic device that heats tobacco-filled sticks wrapped in paper to generate a nicotine-containing aerosol. Under an exclusive licensing agreement with PMI, Altria's Philip Morris USA (PM USA) subsidiary has been commercializing IQOS in the U.S. along with Marlboro HeatSticks.

However, in November, PM USA had to remove IQOS from the market due to an import ban and cease-and-desist orders from the U.S. International Trade Commission (ITC). As Convenience Store News reported, ITC ruled that Philip Morris International and Altria must stop selling and importing the product after it found that a IQOS infringes on two patents by British America Tobacco Group, the London-based parent company of Reynolds American Inc.