Philip Morris Agrees to Buy Swedish Match for US$16 Billion

by BLOOMBERG / pic by TMR FILE

PHILIP MORRIS International Inc agreed to buy smokeless tobacco company Swedish Match AB in a US$16 billion transaction to hasten its push beyond cigarettes.

The maker of Marlboros offered 106 kronor a share (US$10.56) for the smaller business, it said in a statement Wednesday, a premium of nearly 40% to Swedish Match’s closing price on Monday. The board of directors at the Stockholm-based company said shareholders should accept the offer.

The agreement with Swedish Match, whose vision statement is “a world without cigarettes,” ranks as one of the largest transatlantic deals this year and thrusts Philip Morris into the highly competitive field of oral nicotine products, many of which are very different from the chewing tobacco of the past. It also opens up the large and growing U.S. smoking alternatives market to the company, at a time when it’s looking at ways to exit Russia after its invasion of Ukraine.

The tobacco giant has been at the forefront of the industry’s push to diversify beyond cigarettes as regulations become ever more restrictive. With new products and a string of acquisitions, the company last year generated almost 30% of its net revenues from smoke-free products – up from none in 2015.

Philip Morris developed the IQOS heated-tobacco system and last year agreed to take over Vectura Group, a developer of asthma drugs. It also acquired Fertin Pharma, which produces a smoking-cessation aid, and OtiTopic, a respiratory drug developer with an inhalable aspirin treatment for heart attacks in late-stage trials.

Philip Morris aims to make more than half of its net revenues from smoke-free products by 2025.

Swedish Match is a leading maker of snus – a smokeless tobacco product that users place between their upper lip and gum popular in Sweden but banned across much of the rest of Europe. The company also makes nicotine pouches called ZYN and sold in the U.S.

The transaction gives Philip Morris a broader distribution network in the U.S. for its reduced-risk products, helping position it to bring IQOS or vape products to American consumers, Jefferies analyst Owen Bennett said in a research note.

In March, Swedish Match decided to suspend a planned spinoff of its U.S. cigar business amid heightened regulatory risk.

Philip Morris expects the transaction will result in a combined company with three times net debt to adjusted earnings. It plans to deleverage over the coming years and has suspended its current three-year share repurchase program which began last July.

The company said it plans no material changes to Swedish Match’s operational sites, its management and employees as the business is complementary to its own.