Swedish Match hits record high with Philip Morris takeover

STOCKHOLM, May 10 (Reuters) – Shares of Swedish Match (SWMA.ST) hit a record high on Tuesday after Marlboro maker Philip Morris International Inc (PM.N) said it was in talks to buy the Stockholm-based company in a bet on the fast-growing market for alternatives to cigarettes.

The two companies confirmed media reports of the talks in separate statements after the Stockholm stock exchange closed on Monday, saying it was uncertain whether an offer would be made. Read more

Swedish Match derives most of its profits from Swedish-style snuff called “snus”, but its Zyn tobacco-free nicotine pouches are growing rapidly in Scandinavia and the United States.

The company, tipped as a takeover candidate for years, estimates that the US market for tobacco-free nicotine pouches doubled in volume last year and Zyn accounted for more than half of the market.

Its shares hit a record high of 97.42 Swedish crowns early on Tuesday and were up around 25% at 95.40 Swedish crowns as of 1510 GMT, valuing the company at nearly $15 billion.

The Wall Street Journal (WSJ) reported on Monday, without identifying its sources, that a potential deal could be valued at $15 billion or more.

Several analysts said that might be too low to attract shareholders, and some did not rule out a counter-offer, most likely from a peer who, like Philip Morris International (PMI), has little or no of activity in the United States.

“The implied multiple at this level does not appear particularly demanding, in our view,” Bank of America analysts said in a WSJ valuation note.

Bronte Capital, which owns around 1% of Swedish Match, said that figure undervalued the group.

Swedish Match’s Smokefree division, which includes snus and Zyn, accounted for around two-thirds of the group’s sales in 2021 – or 12 billion crowns ($1.2 billion) – with cigars accounting for a quarter.

“The acquisition of Swedish Match, if confirmed, would be extremely well aligned with PM’s strategic objectives and would have a reasonably straightforward path to regulatory approval,” said Alastair Mankin, vice president of brokerage firm Cowen. .

“Altria and BATS wouldn’t, both companies scaled to compete.”

Shares of PMI, which is seeking to expand its smoke-free options amid growing global scrutiny of traditional cigarettes, opened higher but were down 0.8% by mid-morning in New York.

“Strategically, we think this makes a lot of sense,” Jefferies analysts said in a note to clients. “This would give PMI a leadership position in the European smokeless products sector, while also providing distribution in the United States for its own wider deployment of RRPs (reduced risk products).”

Swedish Match in March suspended plans to spin off and list its cigar business. Its products also include chewing tobacco, American-style wet snuff, matches and lighters.

In the United States, Swedish Match is the biggest player in the nicotine pouches and chewing tobacco markets, according to its website, and the No. 3 player in wet snuff. In Scandinavia, it is the market leader in snus-based products and No. 2 in nicotine sachets.

SEB analysts said rivals BAT (BATS.L), Altria (MO.N) and Japan Tobacco (2914.T), or an investment firm, may be interested in buying Swedish Match, or parts of it.

Bernstein analysts lowered their rating on Altria on Tuesday, saying a PMI deal for the world of Swedish Match lowers Altria’s chances of dominating the U.S. next-generation smoking products market. Altria shares fell 7%.

Swedish Match estimates that the Scandinavian smokeless tobacco market totaled more than 400 million cans last year, and the nicotine pouch market at around 100 million. He estimates that the American market amounted to 50-60 million and 300 million respectively.

A sale of its cigar division would see Swedish Match exit combustible tobacco products, having sold its cigarette business in 1999.

Researchers debate the health effects of snus, with some studies indicating that its use may increase the risk of cancer.

Snus is banned in the European Union, with the exception of Sweden.

Swedish Match in recent years has unsuccessfully challenged the ban saying that snus is safer than cigarettes. In the United States, the Food and Drug Administration in 2019 approved the marketing of snus as less harmful than cigarettes.

Swedish Match is due to release first-quarter results on Wednesday.

($1 = 10.0416 Swedish crowns)

Reporting by Anna Ringstrom and Marie Mannes Editing by David Evans and Mark Potter

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