28 অক্টোবর 2022

Insights

Why did Philip Morris raise its bid for Swedish Match AB?


Cigarette producer Philip Morris International Inc (PM) has raised its buyout offer of the Swedish Match AB to $15.8 billion, hoping to further expand into the cigarette alternatives market. So what are the future implications for Philip Morris’ acquisition of such an unknown company, and why are so many financial news sites writing about it?

Philip Morris in decline

PM Chart
PM Chart

PM has had a rocky 5 years with no signs of consistent growth. Trend traders saw a shaky but bullish run after the March 2020 crash, but 2022 volatility gave investors pause, which likely reduced trading volume and added to the bearish fall.

The future of Philip Morris

Sitting in an outdoor cafe, it’s easy to spot people holding vapes or e-cigarettes. Smokers are looking for ways to lower the cost of their habit, and the smoke-free alternatives are cheaper, cleaner, and more accepted by the anti-smoking population. It’s no wonder people are moving away from smelly cigarettes in favor of the hundreds of fruity options.

On its website, Philip Morris now shows its intentions to replace cigarettes with smoke-free products. This comes as Philip Morris agrees to pay $2.7 billion for exclusive rights to sell IQOS, the e-cigarette producer.

Today, about 1.1 billion people smoke traditional cigarettes, accounting for 203 billion cigarettes sold, a 45% decline from the 398 billion in 2001. Meanwhile, e-cigarette and vape user figures continue to rise, reaching approximately 82 million last year.

Social evolution is a challenge that every company faces, and the only way to survive is to innovate with the times. So it makes sense that the tobacco giant would start looking for alternative revenue sources. Philip Morris’ entry into the e-cigarette industry (valued at $18 billion in 2021) is already well underway. And with over 100 years of experience distributing nicotine products and an annual revenue of $31.4 billion last year, they certainly have the resources to gain market share.

A new market for Philip Morris

Regulatory authorities in the EU, US and India are now relaxing restrictions as the world adopts e-cigarettes and vaping as an alternative to tobacco consumption. Is it healthier? The jury is still out. Let’s just say, the only thing our lungs are designed to intake is air. But, what if there was a healthier alternative to both?

Philip Morris might have stumbled onto a Scandinavian solution to smokers’ health issues that’s actually been around for decades. A solution that has somehow stayed under the global radar... until now. An inexpensive product that delivers nicotine without the need for lung inhalation.

Swedish Match AB

Swedish Match AB is a Scandinavian company that wants a world without cigarettes. Swedish Match AB is considered a major driving force in the nicotine industry, but not globally, not yet. So what is their little-known product that could change the nicotine industry forever?

It’s called Snus. it’s a soft pouch the size of a piece of chewing gum that is placed at the cheek or under the lip. Not only does it offer a controlled and constant release of nicotine, it does it without any smoke or vapor inhalation. This means people can use it indoors, on planes, in offices, and any other place that restricts smoking and vaping.

It’s common in Scandinavian countries, and Swedish Match AB is a titan in its production. 15% of the Norwegian population use Snus daily, which is double the traditional cigarette smokers. Studies suggest the use of Snus is substantially less harmful to health than smoking.

The assumption

Tobacco is going out of style. It’s expensive, makes clothes smell, damages lungs, and browns teeth. These days, there are fewer places to smoke, and Philip Morris’ future is clearly on rocky ground unless it moves with the times.

There’s no press release yet, but Philip Morris’ acquisition of Swedish Match AB seems to have only one conclusion. Philip Morris intends to market Snus to the world as a lung-healthy alternative to smoking and vaping. If they do, and it’s welcomed by nicotine users, it might be the savior of the company.

There are no data to support a stock rise for PM based on the acquisition of Swedish Match AB, and if it does rise, it probably won’t happen this year. But buying low and selling high is the trader's way, and PM is low right now.

Before trading PM, ask yourself two questions. Will governments permit and regulate Snus? More importantly, will smokers make the switch?

If you believe “yes” is the answer to those questions, then you might be looking at a ground-floor opportunity that could send PM back to all-time-high territory. If not, then it seems likely that PM stock will continue to struggle for the unforeseeable future, offering traders nothing more than volatility in a narrow range.

Keep your eyes and ears on PM and watch out for telltale signs that Snus is reaching out beyond Scandinavia, and be ready to react to the markets with informed analysis.

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