Philip Morris Raises Offer for Swedish Match and Buys U.S. Rights for IQOS

The current bid values Stockholm-based Swedish Match at 176.4 billion Swedish kronor, or $15.7 billion. That is roughly in line with the initial bid’s $16 billion dollar value.

Philip Morris also said inflation, volatility in equity markets and changes in interest rates played a role in determining the new offer price. The Wall Street Journal previously reported that this was expected.

Philip Morris has been under pressure from Elliott Management Corp. and other investors to sweeten the bid, creating a potential standoff if the latest offer continues to face opposition.

Philip Morris said it won’t increase its bid further.

An Elliott spokeswoman declined to comment.

Philip Morris has separately struck a deal with

Altria

MO -0.22%

to buy back the U.S. commercialization rights for IQOS, Philip Morris’s heated tobacco device, the companies said.

The deal, which takes effect April 30, 2024, frees up Philip Morris to market IQOS in the U.S. through the Swedish Match sales force if the Swedish Match deal closes. Philip Morris is also prepared to sell IQOS in the U.S. on its own, Philip Morris Chief Executive Jacek Olczak said. The deal includes an upfront $1 billion payment with the rest paid by July 2023, Altria said.

Altria introduced IQOS in the U.S. in 2019 and sold it in a handful of states until last year, when it had to stop importing IQOS as the result of a patent dispute. Philip Morris has said it plans to begin manufacturing IQOS in the U.S. next year so that it may resume selling the products in the U.S.

The payments from Philip Morris will give Altria greater flexibility to allocate resources toward its plan to expand into smoke-free products, Altria Chief Executive Billy Gifford said.

Both IQOS, which is sold outside the U.S., and the proposal to buy Swedish Match are part of Philip Morris’s strategy to generate more than 50% of annual net revenue from smoke-free products by 2025, up from about 30% currently.

IQOS is a device that heats tobacco but doesn’t burn it or produce smoke when users inhale. It is an alternative to e-cigarettes, which create an aerosol from a nicotine liquid.

Philip Morris and Altria have been in a dispute over IQOS, which they introduced into the U.S. through a partnership. Philip Morris argued that Altria hadn’t met the agreed-upon sales targets for IQOS that would allow Altria to extend its exclusive U.S. rights. Altria said that it had. The two Marlboro makers will now pursue competing products in the U.S.

Altria, which sells Marlboro cigarettes in the U.S., said it expects to complete the design for its own new heated tobacco device by the end of 2022; it would then need to seek FDA authorization. Altria is also the largest shareholder in Juul Labs Inc., an e-cigarette maker that is in a dispute with U.S. officials over whether it can remain on the U.S. market.

The friendly deal between Philip Morris and Swedish Match is still conditional on the tobacco company gaining at least 90% of Swedish Match’s shares. That would allow Philip Morris to squeeze out any residual shareholders by paying them the same price as other investors, and then fully fold the business into its own.

Elliott could play a crucial role in determining Philip Morris’s ability to achieve that goal because of its 7.25% stake in Swedish Match. That stake is almost big enough on its own to prevent Philip Morris from reaching its threshold.

Philip Morris said it is prepared to abandon the offer if it can’t reach 90% support level.

“Should the offer fail, we are well prepared to proceed autonomously to develop IQOS and the rest of our smoke-free portfolio in the U.S.,” Philip Morris’s Mr. Olczak said.

Write to Jennifer Maloney at jennifer.maloney@wsj.com and Ben Dummett at ben.dummett@wsj.com