Phillip Morris Set to Acquire Its European Counterpart Swedish Match with Billion Dollars

Philipp Morris Acquire Swedish Match
PHOTO By Daily Sabah

The acquisition will be helpful for PMI to attain its aim of producing over 50% revenue from smoke-free products.

Phillip Morris International Inc. (PMI), a US-based organization, is negotiating to acquire a Stockholm-based organization, the Swedish Match. According to the reports, the deal would be worth $15 billion or more. These talks can end up in a final deal during this week. Still, there is a warning of the deal’s collapse.

If the deal progresses to acquirement, it will strengthen the presence of the tobacco giant in a fast-growing smoke-free brands industry. However, no reports have yet come out about the terms and contours. The deal will help PMI attain its goal of moving the company towards nicotine alternatives to replace cigarettes.

Phillip Morris has a market value of around $154 billion. However, Swedish Match has around 117 billion Swedish Krona, equivalent to about $12 billion. A deal valued at about $15 billion or more is considerable with a typical premium.

Swedish Match has the largest market in Scandinavia and the US. The ZYN nicotine pouch brand dominates a market containing competing counterparts like British American Tobacco PLC and Altria Group Inc. Swedish Math’s General Snus is a smokeless tobacco product. The Food and Drug Administration (FDA) authorized these products in 2019 as they have reduced risks of heart diseases, mouth cancer, and lung cancer than cigarettes.

Swedish Match has observed double-digit sales expansion in the previous year. Its smoke-free division has contributed most to these revenues in the US, and ZYN has observed rapid growth.

Looking back to the history, Phillip Morris originated in 2008 when Altria separated its global tobacco business from PMI, USA, and offered investors immediate access to the rapidly developing international operations. Phillip Morris vends Marlboro cigarettes outside the US and other brands like Lark, Chesterfield, L&M, and Phillip Morris. PMI comes among the top tobacco companies.

We can see the persistent decline in cigarette sales due to the stigma and health hazards associated with cigarettes. That’s why PMI and its competitors are looking for new sources to generate revenues. They have invested billions of dollars into heated tobacco devices, e-cigarettes, and other less harmful products.

Phillip Morris is more aggressive than its rivals. Its goal is to produce over 50% of the total profit from smoke-free products by 2025. Currently, IQOS is the leading smoke-free device that heats tobacco instead of burning it. IQOS has contributed almost 29%, $31.4 billion of its total profit last year.

The other smokeless tobacco brands in the US include Longhorn and America’s Best Chew. As per the company website, Swedish Match’s shipment of nicotine pouches’ cans in the US has increased 52% from 2020. However, the shipment of moist snuff cans has been reduced due to increased consumer charges and the switch to nicotine pouches.

Moreover, shipments of chewing tobacco had also declined when an uncommon jump in volume occurred in 2020. It was probably because of the Covid-19 impact on customer behavior, as mentioned on its website. In the last year, the Swedish Match’s nicotine pouch share in the US market dropped to 64% from around 75% in 2020, showing the competition is encroaching on.

Phillip Morris will also acquire Swedish Match’s operations of making lighters, matches, and cigars. Swedish has envisioned offshoot its cigar business to stop the production of combustible tobacco products. However, the company has postponed its efforts for the foreseeable future as the cigar business faces regulatory uncertainties.

The acquisition seems to be a crucial part of the PMI’s plan to reduce its dependence on cigarette sales. The Swedish Match deal will be the fifth and biggest deal since the start of the previous year. The other deals involve a $1.4 billion overthrow of UK pharmaceutical operations Vectura Group to expand its business around inhaled therapeutics.

Sharon
Author: Sharon

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