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07/12/2022

Investor's Stake in Swedish Match Could Delay PMI Tie-Up

Elliott Investment Management could be a stumbling block for potential deal.
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RICHMOND, Va. — Any potential deal between Swedish Match AB and Philip Morris International Inc. (PMI) could be heading toward a speed bump.

Citing people familiar with the matter, Bloomberg reported that Elliott Investment Management is building a stake in Swedish Match AB.

The investment firm's move comes as Swedish Match and PMI are exploring a possible tie-up. The any merger could come with a $15-billion price tag, as Convenience Store News reported.

However, Elliott plans to oppose the transaction under its current terms, Bloomberg reported. The news outlet could not reach Swedish Match and PMI for comment, and a representative for Elliot declined to comment.

On May 9, Swedish Match confirmed it was in talks with PMI about a possible takeover bid.

"The board of directors of Swedish Match AB has noted the recent speculation and confirms that discussions with Philip Morris International Inc. regarding a possible public takeover offer for Swedish Match are ongoing," the company said. "There can be no certainty that an offer will be made, nor as to the terms of any such potential offer."

In a similar statement, PMI said the discussions are in progress and it is uncertain whether an offer will be made adding it "intends to make no further comment regarding the discussions unless, and until, it is appropriate to do so."

According to Bloomberg, the deal is subject to numerous conditions, including PMI taking up more than 90 percent of Swedish Match's shares with its offer, unless it chooses to waive that condition.

Mads Rosendal, an analyst at Danske Bank A/S, cast doubt that Elliot would be able to build a large enough stake in Swedish Match to stop a takeover on its own, the news outlet reported.

"Even if they were to be successful in blocking the deal it would not necessarily be bad for Swedish Match spreads, as they were trading tighter than PMI before the deal announcement," he wrote in a research note on July 8.

As CSNews reported in May, a deal would help PMI progress its goal to move away from combustible tobacco products.

In 2021, PMI CEO Jacek Olczak said the company would phase out traditional cigarettes in favor of alternatives such as e-cigarettes and heated tobacco devices in the United Kingdom.

According to the company, PMI has invested more than $9 billion since 2008 to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes.

As of March 31, PMI's smoke-free products are available for sale in 71 markets.

For its part, Swedish Match has transformed its business model away from combustible tobacco, starting with the divestiture of its cigarette business in 1999, and later with its divestitures of pipe tobacco, premium cigars and its non-U.S. machine-made cigar business.

This past September, Swedish Match announced plans to separate its cigar business. However, it put those plans on hold in March citing regulatory uncertainties.

Swedish Match AB is based in Stockholm, with U.S. headquarters in Richmond. Production is located in seven countries, with the majority of the group sales coming from the United States and Scandinavia.