Philip Morris International (NYSE:PM) has bagged the exclusive U.S. commercialization rights to the IQOS system from Altria Group (NYSE:MO), effective April 30, 2024. The deal involves a cash consideration of $2.7 billion. Separately, the company has raised its offer to buy Swedish Match (GB:0GO4), a Stockholm-based company that makes oral nicotine pouches.
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More on the Philip Morris-Swedish Match Proposed Deal
Philip Morris is now offering 116 Swedish Kroner, up from its original offer price of 106 Swedish Kroner, to account for the impact of the strengthening of the U.S. dollar. The company was under pressure from Elliott management (which has 7.25% stake in Swedish Match as per Bloomberg) and other investors to raise the offer price. The deal is now valued at about $15.8 billion.
Jacek Olczak, CEO of Philip Morris stated, “Moreover, we believe that the deterioration in the global economic outlook, equity markets, and the interest rate environment since the time of the initial offer strengthens yet further the attractiveness of the revised offer to Swedish Match’s shareholders.”
Philip Morris has made it clear that it will not increase the price any further. If the deal goes through, the company will gain access to the extensive distribution network of Swedish Match in the U.S. for smoking alternatives, including vape products, heated tobacco, and nicotine pouches.
Looking for Growth in the U.S.
Coming back to the agreement with Altria, Philip Morris has paid $1.0 billion and will pay the remaining $1.7 billion, along with interest, by July 2023 for the U.S. IQOS rights. The company sees substantial growth prospects for IQOS in the U.S. market, given the strong demand for smoke-free alternatives to cigarettes.
The company intends to use the sales team of Swedish Match to market IQOS in the U.S. However, if the Swedish Match deal doesn’t materialize, then the company is “well prepared to proceed autonomously to develop IQOS” and its other smoke-free products.
Philip Morris estimates that IQOS heat-not-burn products could account for nearly 10% of the total U.S. cigarette and heated tobacco unit volumes by 2030. The purchase of the U.S. IQOS rights and the Swedish Match deal are part of the company’s plans to generate over 50% of its annual revenue from smoke-free products by 2025.
Is PM a Good Stock to Buy?
Wall Street is cautiously optimistic about Philip Morris stock with a Moderate Buy consensus rating based on five Buys and two Holds. The average PM stock price target of $103.83 implies 20% upside potential from current levels. Shares have declined nearly 9% year-to-date.
