Elliott Management, Swedish Match’s largest shareholder, has decided to back Philip Morris’ $15.7 billion bid for the smokeless tobacco specialist, putting the deal within easy reach, according to several people familiar with the matter.
PMI’s bid has received more than 80 percent shareholder approval, as of the last count Friday, and more could be processed on Monday, according to two people familiar with the matter. Handelsbanken, the Swedish bank, acts as the receiving agent.
Marlboro Factory first offered to buy Swedish Match in May, but the takeover bid was complicated when arbitrage funds and activist hedge funds bought the shares, forcing PMI to increase its offer from SEK 106 ($9.63) to SEK 116 per share last month to improve the deal. .
Under strict Swedish takeover rules, PMI has made its offer conditional on achieving more than 90 per cent shareholder acceptance by the November 4 deadline, but PMI also reserves the right to complete the offer with a lower level of acceptance.
Two people close to the acquisition said that Elliott, as the largest shareholder who was the effective kingmaker of the deal, decided to float its 10.5 percent stake, driving shareholder acceptance to more than 80 percent and paving the way for the takeover.
Activist hedge fund Elliott is expected to make about $150 million in profit from the deal, after he began buying the stock below the offer price of SEK 106, according to Financial Times calculations. The position was built out of Elliott’s London office led by Nabil Bahnaji, Senior Portfolio Manager at the firm.
The two people close to the acquisition said they expect the PMI to lower the bottom line and extend the offer period by a few weeks so that more investors can bid and can get the deal through the line.
“If PMI wants to do that . . . they are likely to give up the 80 percent range, declare the offer unconditional and open an extended offer period,” a person familiar with the deal said. “I would then envision more shareholder bids and they would exceed 90 percent.”
One expected that some index funds, retail investors and other dealers would bid because they “would not want to spend money and time on the back end of trading.”
The person added that Swedish Match’s longtime shareholders, such as Framtiden Partnerships and Australian fund manager John Hempton Bronte Capital, who hold about 1 percent of the shares respectively and have so far declined to bid, may have to “reluctantly flip”.
“Without Elliott, I’m forced to sell,” Heimton told the Financial Times. “I don’t like being in a minority in a company on the other side of the world without a big brother by my side.”
But Dan Juran, managing director at Framtiden, insisted he had no plans to bid, adding that the deal proved a “vulnerable position” for a long-term investor.
If PMI succeeds in acquiring Swedish Match, it would be a huge boon to its efforts to move away from cigarettes and toward purported next-generation products as part of its pledge to “remove the world’s smoke.”
Not only will PMI add Swedish Match’s highly successful Zyn product, which owns more than 60 percent of the US nicotine bag market, to its portfolio, but will also be able to use the product’s retail distribution channels to sell IQOS heated tobacco. Sticks all over the United States.
PMI, Swedish Match and Elliott declined to comment.
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