Swedish Match Accepts PMI’s $16 Billion Offer
Swedish Match’s board of directors has accepted Philip Morris International’s offer of SEK161.2 billion ($16.14 billion), according to The Wall Street Journal. The deal is subject to shareholder approval.
PMI hosted a live audio webcast today to discuss the offer. An archived copy of the webcast will be available at www.pmi.com/investors until 5 p.m. ET on June 9, 2022.
“We are pleased to announce this exciting next step in Philip Morris International’s and Swedish Match’s trajectory toward a smoke-free future,” said PMI CEO Jacek Olczak in a statement. “Underpinned by compelling strategic and financial rationale, this combination would create a global smoke-free champion—strengthened by complementary geographic footprints, commercial capabilities and product portfolios—and open up significant platforms for growth in the U.S. and internationally.
“Swedish Match’s dedicated employees and management have steadfastly pursued the company’s vision of a world without cigarettes while delivering very strong results. We look forward to building upon this success and joining forces to accelerate our shared smoke-free mission.”
In 2016, PMI announced its new mission to replace cigarettes with science-based, less harmful alternatives as soon as possible, and the company says it has made considerable progress toward that goal. While in 2015, essentially all of PMI’s net revenues came from cigarettes, last year nearly 30 percent came from smoke-free products. By 2025, PMI aims to be a predominantly smoke-free company, with more than half of its net revenues coming from such products. PMI says it has built world-class scientific assessment capabilities, notably in the areas of preclinical systems toxicology, clinical and behavioral research as well as postmarket studies.
Swedish Match embarked on its smoke-free journey two decades ago, starting with its decision to divest its cigarette business. PMI says it values how Swedish Match has relentlessly pursued tobacco harm reduction through its range of smoke-free products; received authorizations for its products via strict regulatory pathways in the U.S.; and reshaped the public health environment in countries such as Sweden and Norway.
“As PMI continues to evolve its business for the long term, it believes that the two companies would be a perfect pairing of strategic vision, culture and enterprise,” PMI wrote in a press note. “Together, the companies would be able to create a global, science-led smoke-free champion, combining expertise in heated tobacco and oral nicotine—including multiple MRTP [modified-risk tobacco product] authorizations—as well as PMI’s emerging presence in e-vapor products, to switch more adult smokers to better alternatives than the two could achieve as separate companies. Swedish Match would lead the combined company’s oral nicotine business.”
Financial analysts confirmed the deal has strategic merit, citing Swedish Match’s access to the lucrative U.S. market. Cigarette sales have been declining almost unabated for years because of the health hazards and the stigma attached to smoking. Meanwhile, “modern oral” products, such as nicotine pouches and lozenges, are driving growth in the oral tobacco category, which includes traditional chewing tobacco and moist snuff. Swedish Match’s Zyn pouch leads the U.S. modern oral category with a volume market share of 64 percent in 2021.
According to PMI, the combination would immediately enhance PMI’s already strong growth profile and support additional opportunities in the U.S. and internationally over time. It is also expected to be accretive to adjusted diluted earnings per share before any synergies and excluding transaction-related costs as well as the amortization of acquired intangibles. Swedish Match’s operating cash flow comprises meaningful U.S. dollar net income, thereby improving PMI’s currency profile.
From January through March 2022, Swedish Match’s sales and operating profit from product segments increased on the back of continued strong momentum for the U.S. smoke-free business, according to the company’s interim report.
Group sales increased by 10 percent to SEK4.89 billion ($492.05 million). In local currencies, sales increased by 2 percent for the first quarter.
Operating profit from product segments increased to SEK2.12 billion. In local currencies, operating profit from product segments decreased by 7 percent for the first quarter.
Profit after tax amounted to SEK1.49 billion.
PMI says it intends to preserve and develop Swedish Match’s operational presence in Sweden, where much of the company’s skills base is located, as well as in Richmond, Virginia, the site of the head office for Swedish Match’s U.S. Division. PMI has no plans to divest Swedish Match’s Lights business.