Swedish Match Agrees to $16 Billion Takeover by Philip Morris

In the U.S.—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. and British American Tobacco PLC, according to Swedish Match’s website. The U.S. 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 U.S., 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 U.S. 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.

Cigarette sales 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.

Demand in the U.S. is growing for next-generation tobacco alternatives. Vaping-product sales in U.S. stores tracked by Nielsen increased 11% in the 52 weeks ended April 23 compared with the previous year, according to Goldman Sachs analyst Bonnie Herzog. The U.S. vaping market is led by Juul Labs Inc. and Reynolds American Inc., a subsidiary of British American Tobacco.

Meanwhile, “modern-oral” products such as nicotine pouches and lozenges are driving growth in the oral-tobacco category, which includes traditional chewing tobacco and moist snuff. Sales of Altria’s On! nicotine pouches increased 122% over the same period and Reynolds’s Velo pouches and lozenges were up 47%.

Philip Morris is among the most aggressive in making this pivot toward such products. 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 U.S. smokeless-tobacco brands include Longhorn, a type of moist snuff brand, and America’s Best Chew, a chewing-tobacco product.

BofA Securities and Citigroup were financial advisers to Philip Morris. Roschier Advokatbyrå, DLA Piper, Clifford Chance and Davis Polk & Wardwell were legal advisers. Goldman Sachs was financial adviser to Swedish Match. Mannheimer Swartling Advokatbyrå and KANTER Advokatbyrå were legal advisers.

Write to Ian Walker at [email protected]