Philip Morris International (PMI)’s decision to go ahead with the purchase of all offered Swedish Match shares, despite falling short of its 90% minimum stake threshold, means it may consolidate the Swedish company in its financials and run the business as if it owned 100% of it – an effective takeover that has gone down well with harm reduction advocates, while raising concerns in anti-smoking associations.
Market analyst Karri Rinta of Handelsbanken Capital Markets Rinta expects PMI to reach over 90% of its Swedish rival’s shares by 25th November, which would mean it could demand Swedish Match to be delisted and initiate a compulsory redemption process, forcing the remaining shareholders to cash in their shares.
“While this process could take up to six months to complete, it has no implications on PMI’s ability to run the acquired business,” Rinta told ECigIntelligence.
He said that by accepting the bid, a shareholder would receive payment shortly after 25th November while if they waited for mandatory redemption, they might have to wait up to six months. That meant shareholders might be motivated to accept the bid, making it more likely than PMI would reach its 90% target.
The tobacco giant has already secured more than 80% of shares in Swedish Match, guaranteeing it a substantial majority stake in the company.
“We are pleased that 82.59% of Swedish Match shareholders, including – we believe – the top ten shareholders, have tendered their shares at the best and final price of SEK116 per share [€10.71],” said PMI’s CEO, Jacek Olczak, when the announcement was made on 7th November. “This achievement of a high controlling stake should allow us to harness the strategic potential of the transaction, including anticipated revenue synergies.”
Under Swedish law, in order to compulsorily purchase remaining shares, PMI must own at least a 90% stake in the company – which is why it set that target as a condition in its initial public offer. The company now hopes to gather enough shares to reach that 90% – about 7.4% more than it currently has – during a new offer period, extended to 25th November.
Rinta believes that if PMI does not get the required additional shares – which he believes is unlikely – it will still be in effective total control. “In the unlikely case that PMI would not reach 90% by 25th November, Swedish Match would remain listed until PMI reaches the 90% threshold level,” he said.
The acquisition has been greeted favourably by reduced-risk product advocates, while some anti-smoking associations have expressed concerns.
Tobacco control policy expert Clive Bates said it looked like excellent news for all the players involved. PMI will gain snus and oral nicotine pouch products, contributing to its core strategy of migrating its nicotine business from smoking to smoke-free products. Meanwhile, Swedish Match will gain PMI’s global distribution and marketing network, as well as its substantial R&D capabilities and its balance sheet for expansion purposes. Consumers will gain from more widely available smoke-free products.
Position in the vape market
“I don’t think anti-competitive arguments hold much water,” Bates said. “The acquisition is more likely to increase competition, especially in markets dominated by cigarette sales or in low- and middle-income countries.
“However it plays out from now, PMI will either have the controlling interest or the full ownership of Swedish Match. If PMI reaches 90% ownership, the Swedish Match share will be delisted. From a commercial and public health point of view, the difference will not matter much, in my opinion.”
Bates believes a company like PMI needs to cover the whole range of smoke-free products in order to offer smokers whatever alternative works for them – and as a hedge against the hostility of regulators to its tobacco products. “I would not be surprised if PMI makes further acquisitions to improve its position in the vape market,” he said.
Likewise, Gregory Conley, director of legislative and external affairs for the American Vapor Manufacturers Association, told ECigIntelligence that with or without Swedish Match, PMI was likely to enter the US vaping market.
“The vaping industry in America has had so much on its plate with regulations that an acquisition of this sort has not been a topic of much discussion. In comparison to Altria and British American Tobacco, PMI has undoubtedly made the most progress in replacing its cigarette sales with smoke-free alternatives,” he said.
Do the right thing
However, the International Network of Nicotine Consumer Organisations (Innco), which represents the rights of ex-smokers, perceived a possible risk to the distribution of reduced harm products in PMI’s takeover of Swedish Match.
Executive director Charles Gardner said: “Innco is unhappy that PMI will now absorb the one tobacco company on Earth that had voluntarily stopped making death sticks [cigarettes]. We demand that PMI do the right thing by ensuring that the safer nicotine harm reduction products it just acquired will be affordable, acceptable and available for every smoker in every low- and middle-income country on Earth. This would save tens of millions of lives over just the next few decades.”
Innco urged PMI to consider the example of pharmaceutical companies’ drug and vaccine donation programmes. “PMI needs to put its money where its mouth is and donate or subsidise Swedish Match’s vastly safer nicotine alternatives so that they reach a price point affordable to all smokers in LMICs,” it said.
Activist Atakan Befrits, co-founder of New Nicotine Alliance Sweden said he had hoped for a different outcome. “The marriage between a Swedish company that makes vastly safer oral smokeless products and a big tobacco company that continues to make deadly cigarettes creates strange bedfellows,” he said. “But it could be an opportunity to kill two toxic birds with one harm-reduction stone.”
In the recent Tobacco Transformation Index, which evaluates tobacco companies’ commitments and actions related to tobacco harm reduction, Swedish Match and PMI come out on top, followed by Altria, British American Tobacco (BAT) and Imperial Brands.
– Antonia Di Lorenzo ECigIntelligence staff