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05/10/2022

Swedish Match in Discussions About Possible Takeover Offer

Philip Morris International Inc. could gain a strong position in the U.S. reduced risk market with a deal.
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RICHMOND, Va. — Two international tobacco companies could possibly join forces.

On May 9, Swedish Match confirmed it was in talks with Philip Morris International Inc. (PMI) about a possible takeover bid.

"The board of directors of Swedish Match AB has noted the recent speculation and confirms that discussions with Philip Morris International Inc. regarding a possible public takeover offer for Swedish Match are ongoing," the company said. "There can be no certainty that an offer will be made, nor as to the terms of any such potential offer."

In a similar statement, PMI said the discussions are in progress and it is uncertain whether an offer will be made adding it "intends to make no further comment regarding the discussions unless, and until, it is appropriate to do so."

Reports put any potential deal at $15 billion.

A possible acquisition of Swedish Match follows the company's decision to suspend its planned spinoff of its cigar business.

Swedish Match was originally slated to complete the move, which it announced in September, in the second half of this year, at the earliest. However, regulatory uncertainties drove the company to take step back from the spinoff to shareholders and a subsequent listing on a U.S. national securities exchange.

"While the board of Swedish Match still has the strategic intent to separate the cigar business, and views this as a move that would further enhance the prospects for Swedish Match's U.S. smokefree business, as well as for its U.S. cigar business, the board has today decided to suspend the preparations for the contemplated spin-off until further notice," the company announced in a March 14 statement.

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.

Similar Goals

Over the past 20-plus years, Swedish Match has transformed its business model away from combustible tobacco, starting with the divestiture of its cigarette business in 1999, and later with its divestitures of pipe tobacco, premium cigars and its non-U.S. machine-made cigar business, as Convenience Store News previously reported.

The move away from combustible tobacco products falls in line with PMI's stated goal to deliver a smoke-free future.

In 2021, PMI CEO Jacek Olczak said the company would phase out traditional cigarettes in favor of alternatives such as e-cigarettes and heated tobacco devices in the United Kingdom.

According to the company, PMI has invested more than $9 billion since 2008 to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes.

As of March 31, PMI's smoke-free products are available for sale in 71 markets.

According to Owen Bennett, senior vice president, Equity Research with Jeffries, an acquisition makes sense for PMI and could drive sizeable future upside with regard to its future global reduced-risk products (RRP) positioning.

"To be a long-term global leader in RRP, you need to have a multi-category approach, and you also need to be in the U.S. (the world's largest RRP market)," Bennett said. "This move would give PMI a leading smokeless business in both Europe and the U.S., and within modern oral, a No.2 positioning in Europe and No.1 in the U.S."

As Bennett pointed out, PMI has a very small smokeless business in Europe, and no smokeless business in the United States.

"On broader U.S. prospects, critically, this gives PMI distribution to support a planned U.S. vape entry, and also potentially a solo IQOS re-entry," Bennet said.

IQOS is currently off the market in the U.S. where PMI has an agreement with Richmond-based The Altria Group Inc. to market the heat-not-burn tobacco product — though a tie-up with Swedish Match may call that agreement into question.

"We think this deal would almost certainly suggest PMI would want to get out of the IQOS agreement with Altria and go it alone," Bennett said. "Assuming PMI can off-load Swedish Match's cigar-business, any RRP growth for PMI in the U.S. would be incremental, as it does not need to deal with the combustible offset."