Philip Morris in Talks to Acquire Swedish Match

Bloomberg reports that Philip Morris International Inc, a major tobacco company, is in talks to acquire Swedish Match, a manufacturer of smoke-free tobacco products. This deal would accelerate the company's move beyond traditional cigarettes.

Swedish Match and Philip Morris International confirmed on Monday that they are engaged in discussions, without specifying whether an offer will be made. This potential transaction would be one of the largest cross-Atlantic deals of the year if it goes through.

According to informed sources, discussions have been advanced and an agreement may be announced in the next few days. The sources have requested not to be identified because the details are not public. According to Kenneth Shea, an intelligence analyst for Bloomberg, SwedishMatch has a market valuation of approximately $11.5 billion, and the deal could value the company at $15 billion.

On May 9th, the stock price of Philip Morris International, which sells the Marlboro brand outside of the United States, fell in the overseas market. However, in afternoon trading in New York, the stock price rose 1.9% to $100.83. Meanwhile, SwedishMatch stock price has increased by 4.7% in trading in Stockholm this year.

As global regulations become increasingly strict, Philip Morris has been at the forefront of diversifying beyond traditional cigarettes in the tobacco industry. The company developed the IQOS heated tobacco system and last year agreed to take over asthma drug developer Vectura Group Plc. Additionally, it acquired Fertin Pharma, a producer of smoking cessation aids.

Oral ingestion of nicotine.

A deal will position Philip Morris in the growing market for oral nicotine products, many of which differ greatly from traditional chewed tobacco with their pouches and white appearance. Altria Group Inc. was spun off from Philip Morris International in 2008 and sells Marlboro cigarettes in the US, but has also entered this category through On! brand, which doubled its first-quarter shipment volume. Analysts note the competition in this space is fierce.

Jefferies analyst Owen Bennett stated in a research report that through the acquisition of Swedish Match, Philip Morris will have a wider distribution network in the US for its reduced-risk products, helping them bring their IQOS or vape products to American consumers. Bennett noted that if this deal goes forward, it could be seen as a competitive blow to Altria and British American Tobacco Plc, potentially putting an end to Altria's marketing agreement for IQOS in the US and giving them more incentive to fully control electronic cigarette manufacturer Juul Labs Inc.

Bennett stated, "We also cannot rule out counter-bidding for the Swedish competition." He identified the Japanese Tobacco Company as the most likely pursuer.

Swedish Match has a vision statement of a "world without cigarettes". As a leading manufacturer of snus, a popular smokeless tobacco product in Sweden, it is banned in other parts of Europe. Users place it between their upper lip and gum. Additionally, Swedish Match produces ZYN nicotine pouches for sale in the United States.

Due to increased regulatory risk, a Stockholm-based company has announced the suspension of its plan to spin off its US cigar business in March. The company stated it had received notice from the United States after the Food and Drug Administration's request for so-called substantial equivalence designation was rejected, which has affected approximately 3% of the company's 2021 cigar production.

What does Bloomberg's intelligence department say?

We believe that Philip Morris International's acquisition of Swedish Match, a smokeless tobacco producer, for $15 billion may not be the best use of PMI's capital. While the purchase would expand PMI's overall strategy of creating a "smoke-free" company, it would also further solidify its connections to the controversial tobacco industry.

Kenneth Shea, consumer goods analyst.

This listing will mark the end of the Swedish company's production of combustible tobacco products. However, the company enjoys strong brand recognition for products like ZYN in the smokeless tobacco market in the United States and Nordic regions. Robust sales helped the company report a fourth quarter operating profit of SEK 1.96 billion (approximately $195 million), exceeding analysts' average expectations.

The "smokeless" category includes nicotine pouches and medical treatments. Swedish Match has been actively defending its position and attempting to shut down competitors in the nicotine pouch industry, although its case against controlling shareholder Dryft Sciences LLC failed. In 2020, Kretek International Inc. sold its Drefyt nicotine pouch business to BAT, which sells these pouches under the Velo brand. Swedish Match is appealing the ruling.

Source: Bloomberg News

Tobacco giant Philip Morris has confirmed that it is engaged in talks to acquire Swedish Match. The two companies are said to be in discussions about a possible takeover deal. Swedish Match is a manufacturer of tobacco products, including snus, a smokeless tobacco product widely used in Sweden. The acquisition would expand Philip Morris' range of alternative products and potentially give it a foothold in the premium snus market. Neither company has commented on the potential value of the deal.