Philip Morris International has raised its offer for Swedish Match by almost 10 per cent, caving to pressure from activist hedge funds in a last-ditch effort to complete the takeover of the smokeless tobacco specialist.
PMI, best known for selling Marlboro outside the US, on Thursday increased its offer from Skr106 to SKr116 per share, valuing the target’s equity at about SKr176bn ($ 15.7bn). PMI chief executive Jacek Olczak stressed it was the company’s “best and final price”.
The latest offer represents a victory for a group of hedge funds led by Elliott Management that have built stakes in Swedish Match since the initial offer – Elliott is now the company’s biggest shareholder, with 7.25 per cent.
PMI needs to secure approval from Swedish Match shareholders holding at least 90 per cent of the stock by November 4 to complete the transaction.
Separately, PMI on Wednesday agreed to pay tobacco group Altria about $ 2.7bn for the US commercialisation rights for IQOS, a line of e-cigarettes, giving it full global rights over the products.
“Should the offer fail, we are well prepared to proceed autonomously to develop IQOS and the rest of our smoke-free portfolio in the US,” said Olczak.
John Hempton, the Australian fund manager whose Bronte Capital owns about 1 per cent of Swedish Match stock, told the Financial Times he did not believe PMI would reach the 90 per cent threshold for shareholder acceptances.
He said he was unlikely to tender his shares and that the success of the deal “all depends” on Elliott.
Elliott declined to comment.
Swedish Match produces snus, a popular tobacco product in Scandinavia, as well as oral nicotine pouches, the fastest-growing alternative nicotine category.
The Swedish Match deal would unlock a critical entry point into the US market for smoke-free nicotine products for PMI, which has lacked a significant presence in the US since its split from Altria a decade ago. Talks to reunite the two companies collapsed three years ago.
PMI also plans to exploit Swedish Match’s retail distribution channels to push its newly acquired IQOS product range in the US.
If the deal looks unlikely to secure 90 per cent acceptance, PMI could lower that threshold, but under Swedish law that would limit its ability to fully control and integrate Swedish Match.
Mark Kelly, a broker at Cowen, said PMI would probably need to drop the 90 per cent threshold even if Elliott tendered given the challenge of corralling all its shareholders, especially retail investors and index funds.
“PMI was always expecting to fall short of 90 per cent but in that event, if they are only a few per cent off, there are paths available to them to gain further acceptances and eventually squeeze out the minority,” Kelly said. “There’s plenty of precedent for this with comparable transactions in Sweden.”
Olczak said the new price “primarily reflects the higher net value to PMI. . . given currency movements since the initial offer was announced in May “. The strong performance of the US dollar in recent months means PMI will incur limited extra costs from the improved offer.
Olczak, who took over PMI last year, has sped up the company’s move away from cigarettes but his promise to “unsmoke the world” has been met with skepticism.
In the nine months to September 30, smoke-free products accounted for 30.4 per cent of the group’s total revenues, according to a company filing on Thursday, up 14.2 per cent year-on-year.
BlackRock and Vanguard, the second and third biggest shareholders, also declined to comment.
Swedish Match’s share price was up almost 2 per cent in late afternoon trading to SKr112 in Stockholm in response to the renewed bid. PMI shares dipped 1.6 per cent in midday trading in New York.