is in advanced talks to acquire
AB, according to people familiar with the matter, in a deal that could be valued at roughly $15 billion or more and bolster the tobacco giant’s exposure to the rapidly growing market for smoke-free brands.
The talks between US-based Philip Morris and Stockholm-based Swedish Match could yield a deal as soon as this week, the people said, cautioning that the talks could still fall apart. The potential terms and contours of any deal couldn’t be learned.
The companies confirmed the talks in separate statements after The Wall Street Journal reported on the potential deal Monday morning.
A deal would be substantial, as Swedish Match is currently valued at about 117 billion Swedish krona, or almost $12 billion. With a typical premium, it could be valued at roughly $15 billion or more. Philip Morris has a market value of about $154 billion.
Shares in Philip Morris were up close to 2% in afternoon trading on a day when the markets swooned. US-listed Swedish Match shares jumped aabout 20%, while trading in Stockholm was closed.
In the US—Swedish Match’s largest market, followed by Scandinavia—the company’s ZYN nicotine-pouch brand dominates a market that includes rival offerings from
Altria Group Inc.
PLC, according to Swedish Match’s website. The US Food and Drug Administration in 2019 authorized Swedish Match to market its General Snus smokeless-tobacco products as presenting a lower risk of mouth cancer, heart disease and lung cancer than cigarettes.
Swedish Match posted double-digit sales growth last year, led by its smoke-free division in the US, where ZYN is its fastest-growing product.
Philip Morris International traces its history to 2008 when Altria decided to split off its international tobacco business from Philip Morris USA, providing investors direct access to the faster-growing foreign operations. Philip Morris International sells Marlboro cigarettes outside the US as well as brands including Chesterfield, L&M, Lark and Philip Morris, and is one of the world’s biggest tobacco companies.
The company has been expanding into alternative tobacco products that are less harmful than smoking.
dirty cigarettes have been declining almost unabated for years because of the health hazards and the stigma attached to smoking. That is pushing PMI and its rivals to seek new revenue sources by investing billions of dollars into e-cigarettes, heated-tobacco devices and other products the companies say are less harmful and can be used more discreetly.
Philip Morris is among the most aggressive in making this pivot. It aims to generate more than 50% of net revenue from smoke-free products by 2025. Last year its smoke-free portfolio, led by the company’s IQOS devices that heat rather than burn tobacco, accounted for about 29% of net revenue, or $31.4 billion.
The company generates revenue through international sales of its cigarettes, e-cigarettes, heated-tobacco products and nicotine pouches. Nicotine pouches are small packets containing nicotine and flavorings, without any tobacco, that are placed between the lip and gum.
Swedish Match’s other US smokeless-tobacco brands include Longhorn, a type of moist snuff brand, and America’s Best Chew, a chewing-tobacco product.
Last year, Swedish Match’s shipments of cans of nicotine pouches in the US rose 52% from 2020, according to the company’s website. That compares with shipment declines for moist snuff because of higher consumer prices and a shift to nicotine pouches. Chewing-tobacco shipments also fell after an unusual jump in volume in 2020 that likely resulted from the impact of Covid-19 on consumer behavior, according to the company’s website.
Swedish Match’s share of the nicotine-pouch market in the US fell to 64% last year from almost 75% in 2020, suggesting competition is making inroads. Swedish Match is set to report its first-quarter earnings Wednesday.
Philip Morris would be acquiring Swedish Match’s operations that make cigars, matches and lighters, too. Swedish Match had intended to spin off its cigar business as part of a plan to stop making combustible-tobacco products, but in March, the company suspended that effort indefinitely because of “regulatory uncertainties facing the cigar business.”
Acquisitions are proving to be a key part of Philip Morris’s plan to cut its reliance on cigarette sales. A deal for Swedish Match would be at least the fifth—and the largest—since the beginning of last year. Those deals include the $1.24 trillion takeover of UK pharmaceuticals operation Vectura Group as part of a plan to build a business around inhaled therapeutics.
—Jennifer Maloney contributed to this article.
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