By Anna Ringstrom
STOCKHOLM – Philip Morris International Inc has agreed to buy tobacco and nicotine products maker Swedish Match in a $16 billion deal that aims to cut the U.S. company’s dependence on cigarettes.
In a bet on fast-growing markets for cigarette alternatives, PMI said on Wednesday it was making a cash offer for the Stockholm-based group at 106 crowns per share, valuing it at 161.2 billion crowns ($16 billion). Swedish Match’s board has recommended the offer.
Swedish Match shares were up 9% to a record 103.45 crowns, having jumped already on Tuesday when PMI confirmed reports it was in talks to buy the firm.
However, hedge fund Bronte Capital, which owns about 1% of Swedish Match, said the offer price was “unacceptable”, reiterating its opposition to the takeover. Some 90% of shareholders need to agree to the deal for it to proceed under Swedish law.
John Hempton, co-founder of Sydney-based Bronte Capital, said he had been contacted by many shareholders opposing the deal either because the price was too low or because they want the company to stay as it is.
A Swedish Match spokesperson declined to comment. “Shareholders are free to make their own decisions and make their own statements,” the spokesperson said.
Philip Morris is the most realistic buyer for Swedish Match from a competition perspective, but may yet need to lift its offer, Alastair Mankin, vice president at brokerage Cowen, said in a research note.
“Maybe target shareholders will want to agitate for a better price than PM initially offers – but that would seem the most intuitive path to a price improvement, rather than the potential for a competing bid from a third party,” Mankin said.
The Swedish company makes most of its profit from Swedish-style moist snuff called “snus”. Sales of its relatively new Zyn tobacco-free nicotine pouches – which, like snus, are put under the upper lip and sucked – are growing rapidly in Scandinavia and the United States as consumers become more health-conscious.
Swedish Match controls nearly half the world’s share of both the nicotine pouch and snus markets. It is also the fourth largest producer of U.S.-style moist snuff, a category that is led by Altria, according to Euromonitor.
Swedish Match dropped cigarettes in 1999 and wants to spin off its cigar business, a move that would mean a full exit from combustible products. PMI aims for smoke-free products to account for more than half of sales by 2025.
PMI was spun off from U.S. peer Altria, a rival to Swedish Match, in 2008. Swedish Match would give PMI, which does not sell its products in the United States, access to a ready-made distribution network.
“This is not a cost synergy case,” Swedish Match CEO Lars Dahlgren told Reuters. “This is rather a textbook example of perfect industrial logic – two companies that share the same vision and that also are very complementary in their commercial setups.”
Analysts at Credit Suisse said they had a positive view on the bid value, which represents roughly a 40% premium to Swedish Match shares prior to the bid announcement.
Swedish Match has long been tipped as a takeover candidate.
(Graphi: Swedish Match dominates tobacco-free oral nicotine industry Swedish Match dominates tobacco-free oral nicotine industry: https://graphics.reuters.com/TOBACCO-PRODUCTS/znvnemrmkpl/chart.png)
BofA Securities and Citigroup Global Markets Limited are acting as advisers to PMI on the deal. Goldman Sachs is advising Swedish Match, which also commissioned an opinion from SEB Corporate Finance.
Swedish Match reported first-quarterly earnings on Wednesday that were slightly below expectations, but sales and profits from Zyn grew significantly in the United States, with deliveries up 35%.
($1 = 10.0381 Swedish crowns)