Philip Morris to Raise Offer for Swedish Match and Buy U.S. Rights for IQOS

Philip Morris’ original bid for Swedish Match in May was 161.2 billion Swedish kronor, which was 16 billion US dollars at the time. The new offer should be announced on Thursday, it said.

The move is facilitated by the US dollar’s strength against the Swedish currency since the deal was inked. Other factors that went into the revised offering included inflation, stock market volatility and changes in interest rates, one of the people said. Philip Morris was acquired from Elliott Management Corp. and pressured other investors to sweeten the offer.

Philip Morris separately struck a deal with Altria MO -0.22%

to buy back the US commercialization rights to IQOS, Philip Morris’ heated tobacco device, the companies said.

The deal, effective April 30, 2024, gives Philip Morris the freedom to market IQOS in the US through Swedish Match’s sales team if Swedish Match closes the deal. Philip Morris is also willing to sell IQOS itself in the US, said Philip Morris chief executive Jacek Olczak. The deal includes a $1 billion upfront payment, with the remainder to be paid by July 2023, Altria said.

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Altria launched IQOS in the US in 2019 and sold it in a handful of states until it had to stop importing IQOS last year due to a patent dispute. Philip Morris has announced that it will begin manufacturing IQOS in the US next year in a bid to resume selling the products in the US

The payments from Philip Morris will give Altria more flexibility to direct resources towards its plan to expand into smoke-free products, said Billy Gifford, Altria’s chief executive.

Both IQOS, which sells outside the U.S., and its proposal to buy Swedish Match are part of Philip Morris’ strategy to have more than 50% of annual net sales from smoke-free products by 2025, up from about 30% currently.

IQOS is a device that heats tobacco but does not burn it or produce smoke when inhaled. It is an alternative to e-cigarettes, which create an aerosol from nicotine liquid.

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Philip Morris and Altria have fallen out over IQOS, which they launched via a partnership in the US. Philip Morris argued that Altria failed to meet agreed sales targets for IQOS, which would allow Altria to expand its exclusive US rights. Altria said it was. The two Marlboro manufacturers will now pursue competing products in the US

Altria, which sells Marlboro cigarettes in the US, said it expects to complete the design for its own new heated tobacco device by the end of 2022; it would then have to apply for FDA approval. Altria is also the largest shareholder in Juul Labs Inc., an e-cigarette maker that is at odds with US officials over whether it can remain in the US market.

The friendly deal between Philip Morris and Swedish Match was conditioned on the tobacco company acquiring more than 90% of Swedish Match’s shares. That would allow Philip Morris to squeeze out any remaining shareholders by paying them the same price as other investors, and then completely fold the company into its own.

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But Philip Morris was pressured by a group of investors led by Elliott, who holds a 7.25% stake in Swedish Match, to increase the offer after they rejected it as too low. Without their support, Philip Morris would have to lower the minimum threshold to complete the bid.

That’s risky, however, because Swedish Match’s remaining minority shareholders could prevent Philip Morris from fully integrating the company. Any move to transfer assets or complete transactions involving related parties would require Philip Morris to hold a shareholder vote, which Philip Morris could not participate in under Swedish takeover rules.

write to Jennifer Maloney at [email protected] and Ben Dummett at [email protected]

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