Philip Morris in South African deal
Philip Morris International, the world’s largest listed tobacco company, extended its push into smokeless tobacco products on Thursday with a deal to buy Swedish Match’s South African business for R1.75bn ($222m).
The deal, which PMI said would still need to be approved by South African regulatory authorities, would give it a dominant position in nasal snuff products, as well as pipe tobacco, in the country.
At the moment, pipe tobacco and nasal snuff account for 31 per cent of total tobacco sales in South Africa, according to PMI.
“This financially attractive acquisition represents an excellent strategic fit for our business in South Africa,” said Jean-Claude Kunz, head of PMI’s Eastern Europe, Middle East & Africa region.
This is the fourth acquisition that PMI has made since its spin-off from Altria last March according to data from Bloomberg. The biggest was the purchase of Canada’s Rothmans for about $2bn last July.
While the cigarette industry remains large and profitable, industry volumes have fallen at an annual rate of 1-2 per cent a year for the past 20 years – a trend that is expected to continue.
As a result, PMI, which saw first-quarter shipments of of its flagship Marlboro brand decline 2.4 per cent, has, along with other large tobacco groups been looking at ways to expand their businesses beyond cigarettes.
Smokeless products such as snus – a teabag-like pouch that users stick between their cheek and gum – and snuff have attracted the most interest thus far.
In February, PMI announced a 50:50 global joint venture with Swedish Match to make and sell smokeless products such as snus.
Last year, rival British American Tobacco boosted its presence in the snus market through the acquisition of Skandinavisk Tobakskompagni and Altria acquired UST, the largest chewing tobacco maker in the US, for $11.7bn.
At the time, analysts said the Altria deal could set off more consolidation in the global tobacco industry. Swedish Match, one of the world’s biggest makers of snus, has long been seen as a potential acquisition target.
While snus may be the latest buzz in the tobacco industry, smokeless tobacco products have attracted the wrath of anti-smoking advocates.
Sweden is the only country in the European Union in where it is legal to sell snus, but BAT is testing the product in Canada and South Africa. The company says health authorities believe snus is healthier than smoked tobacco.
Anti-tobacco groups said allowing snus to be sold in the EU would encourage people to consume tobacco.
