Philip Morris bets on cigarette alternatives with $16 billion bid for Swedish Match

© Reuters. Packs of Marlboro cigarettes are on display in a shop in Saint Petersburg, Russia April 10, 2022. REUTERS/REUTERS PHOTOGRAPHER

By Anna Ringstrom

STOCKHOLM (Reuters) -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 103.30 crowns, having jumped already on Tuesday when PMI confirmed reports it was in talks to buy the firm.

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 are, like snus, put under the upper lip and sucked - are growing rapidly in Scandinavia and the United States as consumers become more health-conscious.

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 (NYSE:MO), 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 a takeover candidate.

"PM is the natural buyer for Swedish Match both from a price/size capacity but also from a deliverability/anti-trust perspective," Alastair Mankin, vice president at brokerage Cowen, said in a note.

BofA Securities and Citigroup (NYSE:C) Global Markets Limited are acting as advisers to PMI on the deal. Goldman Sachs (NYSE:GS) 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)