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PMI Weighs Lowering Swedish Match Acceptance Threshold

·3 min read

(Bloomberg) -- Philip Morris International Inc. is considering lowering the acceptance threshold on its $16 billion takeover bid for smokeless tobacco company Swedish Match AB, people with knowledge of the matter said.

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The Marlboro maker is studying the potential move as it seeks ways to increase the likelihood the acquisition will go through amid opposition from shareholders including Elliott Investment Management, the people said, asking not to be identified because the information is private. Philip Morris will likely decide in the next few weeks whether to make any changes to the deal conditions, the people said.

The bid by Philip Morris was originally conditional on it getting more than a 90% stake in Swedish Match, a level that would normally allow it to squeeze out any remaining dissenters and take the company private. The idea of lowering the acceptance threshold raises the prospect that Philip Morris could end up with a majority stake in Swedish Match and keep it publicly traded, at least temporarily.

Philip Morris is in close contact with Swedish Match and remains committed to getting the transaction done, the people said. It hasn’t made a final decision on any potential tweaks and could end up needing to increase its bid if it continues to face investor opposition, the people said.

Representatives for Philip Morris and Swedish Match didn’t immediately respond to requests for comment.

Elliott said last week it’s built up a 5.25% stake in Swedish Match, confirming an earlier Bloomberg News report. The activist investor plans to oppose the deal under its current terms, people with knowledge of the matter said in July. Shareholders owning 0.24% of Swedish Match had tendered their shares as of Aug. 8.

Last month, Philip Morris extended the acceptance period for the offer to Oct. 21 after European regulators indicated they need more time to review the deal. It’s offering 106 kronor per share in cash. Swedish Match shares were trading up 1% to 109 kronor at 5:23 p.m. Monday in Stockholm, indicating some investors are betting Philip Morris will increase its bid.

Philip Morris already amended its credit agreements on Friday to give it more flexibility, getting lenders to agree to provide funding for the deal as long as its stake in Swedish Match exceeds 50%. The cigarette maker could increase its purchase price by 3% to 5% and still keep net leverage just under three times, Bloomberg Intelligence credit analyst Louise Parker wrote in a research note Monday.

The company is seeking to avoid the same fate as other European takeovers that unraveled because of high shareholder acceptance thresholds. Advent International and Singapore wealth fund GIC Pte in December failed to secure 90% of drugmaker Swedish Orphan Biovitrum AB despite backing from the target’s management and biggest shareholder, torpedoing the $7.6 billion take-private.

Elliott has a history of building stakes in European targets to block full takeovers and secure a higher price, like Vodafone Group Plc’s purchase of German telecommunications company Kabel Deutschland Holding AG.

(Updates with share movement, deal background from seventh paragraph.)

©2022 Bloomberg L.P.