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    SWMA   SE0015812219

SWEDISH MATCH AB

(SWMA)
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104.20 SEK   -0.05%
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Beyond cigarettes: Philip Morris lights up race with Swedish Match bid

05/12/2022 | 02:00am EDT
FILE PHOTO: A Swedish Match concept store for the tobacco group's moist powder tobacco

LONDON, May 12 (Reuters) - Philip Morris International's $16 billion bid for smaller rival Swedish Match highlights the urgency among cigarette makers to tap new and potentially less harmful alternatives as regulation and health concerns snuff out traditional smokes.

Marlboro maker Philip Morris agreed on Wednesday to buy Swedish Match, one of the world's biggest makers of oral nicotine products. These include Snus - a sucked tobacco product the firm says is less harmful than smoking - as well as Zyn nicotine pouches, which are used the same way and tobacco-free.

Both are niche products, but are growing, with Swedish Match's almost 50% share of the global tobacco-free oral nicotine market putting it ahead of both British American Tobacco and Altria Group in that category.

Thomas Russo, managing partner at Gardner Russo & Gardner which owns shares in both Philip Morris (PMI) and Swedish Match, welcomed the tie-up as opening a "new field" for PMI's smoke-free products, which include iQOS tobacco heating devices.

"It's a deal that would continue industry consolidation that's been underway for the past decade," he said.

Russo's U.S. investment firm has a 0.47% stake in PMI and a 0.09% holding in Swedish Match, according to Refinitiv data.

Tobacco companies have scrambled over the past decade to find new markets as regulators crack down on cigarettes and more people quit smoking due to the health risks.

Snus - a Swedish-style snuff - is a moist, smoke-free tobacco product that is placed behind the upper lip, either loose or in portioned sachets. The global market for snus increased from 7,000 tonnes in 2008 to nearly 10,000 tonnes in 2019, according to data firm Euromonitor.

In 2019, the U.S. Food and Drug Administration approved the marketing of Swedish Match's Snus as less harmful than cigarettes.

DEALMAKING

The possible PMI-Swedish Match deal is the latest in a string of investments by the $900 billion-plus tobacco industry in potentially lower risk products, including e-cigarettes and tobacco heating devices.

Euromonitor estimates the global market for smokeless tobacco, e-vapor products and heated tobacco was about $67 billion in 2021, nearly three times the size it was in 2016.

PMI Chief Executive Jacek Olczak said last year his company had spent more than $8 billion on reduced risk products since it began developing them a decade ago.

He said then that PMI would reach its 2025 target for 50% of sales from smoke-free products by growing its existing business, rather than acquisitions.

But buying Swedish Match, would give PMI - which was spun off from Altria in 2008 - an established U.S. market and distribution system, Bernstein analyst Callum Elliot said.

"That said, the deal hasn't gone through yet," Elliot added. "I imagine that Swedish Match is a business that could be appealing to other players within the industry, and we wouldn't be surprised to see a counter bid from other companies, particularly Japan Tobacco Inc."

A Japan Tobacco spokesperson said the company does not comment on rumors or speculation.

COMPETITION

PMI, the No.3 cigarette company in 2020 after China National Tobacco Corp and British American Tobacco (BAT), has not been alone in its attempts to expand beyond combustible tobacco.

News of its move on Swedish Match sent Altria shares down about 9% on Tuesday as investors worried about a step up in competition for the U.S. company.

In 2018, Altria bought a 35% stake in e-cigarette company Juul Labs Inc for $12.8 billion. A year later, it bought 80% of Burger Söhne Holding AG, allowing it to distribute the Swiss company's On! oral nicotine pouches.

Other rivals are watching with interest.

"We think a multi-category strategy in tobacco and nicotine is the right one," BAT's chief marketing officer Kingsley Wheaton told Reuters on Tuesday.

BAT is the world No.2 in tobacco-free oral nicotine products behind Swedish Match. Sales at its "new categories" division jumped 51% to 2.05 billion pounds ($2.52 billion) last year, helped by its e-cigarettes and oral nicotine products.

The London-listed company is aiming for the division to reach revenues of 5 billion pounds, and profitability, by 2025.

"As our business transforms, our portfolio transforms, and, so too, our competitive landscape will evolve," Wheaton said.

While PMI is pursing Swedish Match, other rivals prefer to go it alone.

Imperial Brands is focusing on developing its own products in the heated tobacco market, particularly in Europe, a spokesperson said.

But there is still all to play for.

"The whole next-generation product space is still very nascent - no one in the industry has yet created any next generation product which really, fully replicates the experience of a smoked cigarette or a traditional cigarette," the spokesperson said.

($1 = 0.8131 pounds)

(Reporting by Richa Naidu Additional reporting by Rocky Swift in Tokyo Editing by Josephine Mason and Mark Potter)


© Reuters 2022
Stocks mentioned in the article
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JAPAN TOBACCO, INC. 0.17% 2346 Delayed Quote.0.84%
PHILIP MORRIS INTERNATIONAL, INC. -0.88% 98.74 Delayed Quote.7.83%
SWEDISH MATCH AB -0.05% 104.2 Delayed Quote.44.75%
All news about SWEDISH MATCH AB
03:32aSWMA JUN 30, 2022 9 : 00 AM CET - 0.0 % 104.20 SEK The share
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06/29SWMA JUN 29, 2022 9 : 02 AM CET - 0.1 % 104.35 SEK The share
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06/28SWMA JUN 28, 2022 9 : 10 AM CET - 0.1 % 101.25 SEK The share
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06/27SWMA JUN 27, 2022 9 : 00 AM CET + 0.2 % 101.10 SEK The share
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06/23SWMA JUN 23, 2022 9 : 06 AM CET + 0.1 % 100.85 SEK The share
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06/21SWMA JUN 21, 2022 9 : 01 AM CET + 0.2 % 100.30 SEK The share
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06/20SWMA JUN 20, 2022 9 : 12 AM CET + 0.1 % 100.55 SEK The share
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Financials
Sales 2022 21 421 M 2 090 M 2 090 M
Net income 2022 6 628 M 647 M 647 M
Net Debt 2022 14 174 M 1 383 M 1 383 M
P/E ratio 2022 23,8x
Yield 2022 2,03%
Capitalization 159 B 15 507 M 15 507 M
EV / Sales 2022 8,08x
EV / Sales 2023 7,52x
Nbr of Employees 7 523
Free-Float 88,6%
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Mean consensus HOLD
Number of Analysts 11
Last Close Price 104,20 SEK
Average target price 105,45 SEK
Spread / Average Target 1,20%
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Managers and Directors
Lars Dahlgren Chief Financial Officer
Anders Larsson Chief Financial Officer
Eric Conny Karlsson Chairman
Lars-Olof Löfman Senior VP- Research & Development, Europe Division
Joakim Westh Independent Director
Sector and Competitors
1st jan.Capi. (M$)
SWEDISH MATCH AB44.75%15 567
PHILIP MORRIS INTERNATIONAL, INC.7.83%156 360
BRITISH AMERICAN TOBACCO PLC32.67%98 998
ALTRIA GROUP, INC.-11.88%75 609
ITC LIMITED25.68%42 767
JAPAN TOBACCO, INC.0.84%30 412