Philip Morris wins Elliott’s backing for $15.7bn Swedish Match takeover

Elliott Management, the biggest shareholder in Swedish Match, has decided to back Philip Morris’s $15.7bn offer for the smokeless tobacco specialist, putting completion of the deal within reach, according to several people familiar with the matter.

PMI’s offer had received more than 80 per cent of shareholder acceptances, as of the latest count on Friday, and more may be processed on Monday, according to two people familiar with the matter. Handelsbanken, the Swedish bank, is acting as the receiving agent.

The Marlboro maker first bid for Swedish Match in May, but the takeover bid was complicated when arbitrage funds and activist hedge funds bought up the stock, forcing PMI to up its offer from SKr106 ($9.63) to SKr116 per share last month to sweeten the deal.

Under strict Swedish takeover rules, PMI had made its offer conditional on achieving more than 90 cent of shareholder acceptances by a deadline of November 4, but PMI also reserves the right to complete the offer at a lower level of acceptances.

Two people close to the takeover process said Elliott, which as the biggest shareholder was the effective kingmaker of the deal, had decided to tender its 10.5 per cent stake, pushing shareholder acceptances above 80 per cent and clearing the path to the takeover.

Activist hedge fund Elliott stands to make about $150mn in profit from the deal, having started to buy up the stock below the offer price of SKr106, according to Financial Times calculations. The position was built from Elliott’s London office and led by Nabeel Bhanji, a senior portfolio manager at the company.

The two people close to the takeover process said they expected PMI to lower the threshold and extend the offer period by a few weeks so more investors could tender and they could get the deal over the line.

“If PMI wants to do this . . . they will likely waive down to the 80 per cent range, declare the offer unconditional and open up an extended offer period,” a person familiar with the deal said. “I would imagine then more shareholders tender and they will cross 90 per cent.”

The person predicted that then some index funds, retail investors and other holdouts would tender as they “won’t want to spend the money and time on the back-end of the trade”.

Longtime Swedish Match shareholders, such as Framtiden Partnerships and Australian fund manager John Hempton’s Bronte Capital, which own around 1 per cent of the stock respectively and have so far refused to tender, could be forced to “flop in reluctantly”, the person added.

“Without Elliott, I am forced to sell,” Hempton told the FT. “I don’t like being a minority in a company on the other side of the world without a big brother on my side.”

But Dan Juran, managing member of Framtiden, insisted he had no plans to tender, adding that the deal proved “the endangered status of the species ‘long-term investor’”.

If PMI succeeds in capturing Swedish Match, it will be a huge boon to its efforts to transition away from cigarettes towards so-called next-generation products as part of its pledge to “unsmoke the world”.

PMI will not only add Swedish Match’s hugely successful Zyn product, which has more than a 60 per cent share of the US nicotine pouch market, to its portfolio but it will also be able to use the product’s retail distribution channels to sell its IQOS heated tobacco sticks throughout the US.

PMI, Swedish Match and Elliott declined to comment.