PMI acquires over 90% ownership of Swedish Match

On November 28, 2022, PMI (Phimo International) announced that it had acquired over 90% of the shares of Swedish Match and would be commencing a minority share buy-back program to acquire the remaining issued shares. PMI also requested that Swedish Match be delisted from the stock market.

Jacek Olczak, CEO of PMI, stated in a press release, "We are pleased to obtain over 90% ownership of Swedish Match, which allows us to initiate a minority share buyback program to acquire the remaining outstanding shares and request the company be delisted from the stock market.

This means that the acquisition of these two major international tobacco companies is in its final stages and represents an important breakthrough for Phimaw International as it seeks to expand its influence in the US market. Bloomberg has commented that if this acquisition is completed, it will be one of the biggest transatlantic deals of the year.

As of November 28th, FIMO International holds a total of 1,415,987,960 shares of Swedish Match (including those tendered in the offer as of the extended deadline of November 25th, 2022), which represents approximately 93.11% of the capital and voting rights of the company. After weathering several challenges, this acquisition is finally nearing completion.

Opposition voices

The acquisition of Swedish Match by PhiMo International was far from smooth sailing, with opposition voices surfacing continuously for over six months.

On May 11th, 2022, Swedish Match issued a statement announcing that its board of directors had accepted a purchase offer from Phimol International at a price of 106 Swedish kronor per share, with a total value of 161.2 billion Swedish kronor (equivalent to 16.4 billion US dollars). However, the transaction is subject to approval from shareholders.

Some investors, including Elliott Management Corp., have expressed opposition, stating that the bid undervalues the worth of Swedish Match.

Framtiden Partnerships has been a shareholder of Swedish Match for almost 20 years and has expressed opposition to a proposed transaction, according to a report by PR Newswire on September 21, 2022. They have written a white paper urging others to reject the deal. Under Swedish law, a 90% shareholder approval is required by October 21 for the acquisition to proceed.

The Future Partnerships' white paper has been released; image source: oursmokefreefuture.com.

At the time, Framtiden Partnerships owned over 14.5 million shares of Sweden Match, representing approximately 1% of the total shares issued. Dan Juran, a member of the management team at Framtiden Partnerships, expressed his disappointment in a white paper, stating that he has closely followed the development of Sweden Match for nearly two decades and currently serves as the chairman of the company's nominating committee. Juran was disappointed to see the board of directors recommend the sale of this Swedish gem at a low price during what could potentially be one of its greatest eras.

Framtiden Partnerships has stated that PMI's bid of SEK 106 (approximately $9.63) per share "does not sufficiently evaluate Swedish Match's leading position in the rapidly growing non-tobacco nicotine pouch market in the United States, and falls short of Swedish Match's intrinsic value per share. Estimated intrinsic value per share is close to SEK 200." As a result, Framtiden has informed the board of directors of Philip Morris International that they will not support the proposed transaction.

In recognition of the value of Swedish Match's matches, Elliott Management Corp and other hedge funds increased their stakes in the company in May 2022, anticipating higher bids.

Elliott Investment Management increased their stake in Swedish Match on July 7th, 2022, according to a report by Reuters.

Price Increases and Accepting Bids

Over the past six months, Swedish Match has released two quarterly financial reports, in July and October respectively. The significance and value of these two quarters' performance are self-evident in the context of price negotiation for acquisition.

Swedish Match released its Q2 2022 financial report at the end of July. The report revealed that sales and operating profits exceeded market expectations, thanks to growth in the United States. Sales increased by 23% to reach SEK 5.5 billion ($535 million), which is higher than the predicted SEK 5.3 billion by analysts. The strong performance has given Swedish Match confidence in their negotiations for the acquisition of a larger company, and they are hopeful that Philip Morris International will offer a higher price.

In early October, Thermo Fisher raised its bid from 106 Swedish kronor per share in May to 116 Swedish kronor per share (approximately $10.34), calling it the "best and final price.

On October 7th, Philip Morris International announced that the top 10 shareholders of Swedish Match had accepted PMI's offer, breaking the impasse. Previously, Elliott Investment Management, who held 10.5% of Swedish Match and opposed PMI's bid, has now tendered its shares.

However, Framtiden Partnerships still maintains the desire for Swedish Match to become an independent company.

On November 2nd, Framtiden Partnerships stated that they will not be accepting a higher offer of 116 Swedish kronor (approximately $10.53 USD per share) from Fimo International.

In early November, Swedish Match released its Q3 report for 2022. The company saw a 21% increase in sales, reaching SEK 5.78 billion ($527.7 million) for the quarter. Reporting in local currency, the group saw a 5% increase in sales. The group's operating profit increased year-on-year from SEK 2.08 billion in 2021 to SEK 2.4 billion.

After the third quarter report, Fimo International did not increase their price again, but instead maintained the 116 Swedish krona price they had announced in October.

In addition, Fimo International has acquired 83% of Sweden Match's shares and has unconditionally extended its offer until November 25th in the hopes of increasing its share. Previously, Fimo International had stated that if it did not reach the threshold of 90% necessary for compulsory acquisition of the remaining shares, it may withdraw its offer.

As of November 28th, the total number of shares held by Philmore International in Swedish Match, including those tendered in the offer that was extended on November 25th, 2022, amounts to 1,415,987,960 shares, equivalent to approximately 93.11% of the capital and voting rights of Swedish Match. After facing multiple hurdles, the acquisition is finally coming to a close. 2FIRSTS will continue to monitor the latest developments between Philmore International and Swedish Match. Stay tuned for updates.

Article by Song Yutong