Elliott Management raises stake in takeover target Swedish Match

Hedge fund Elliott Management has upped its stake in Swedish Match to more than 10 per cent, giving it the power to determine the outcome of Philip Morris International’s $16bn takeover offer for the smokeless tobacco specialist.

Under Swedish law, PMI needs more than 90 per cent of shareholder approval to get the deal over the line. Elliott increased its stake from 7.25 per cent to 10.5 per cent on October 24, according to a filing from Finansinspektionen, the Swedish financial regulator. Its current holding means it could block the deal.

Hedge fund Davidson Kempner also increased its stake to 5 per cent, according to a filing. A host of activist investors have built significant positions in Swedish Match since PMI’s first approach in May.

In a bid to get the months-long takeover battle over the line, PMI last week sweetened its offer from SKr106 to SKr116 per share, valuing Swedish Match at about SKr176bn ($15.7bn).

Jacek Olczak, PMI chief executive, said on Friday that passing the 90 per cent threshold was “critical”, adding that Swedish Match’s board had recommended the deal to shareholders.

Earlier this month, PMI announced a $2.7bn deal with Altria to regain the US commercialisation rights for IQOS heated tobacco sticks from May 2024 onwards, which it plans to sell through Swedish Match’s extensive retail distribution channels in the US.

In a further sign of the scramble for market share in the fast-growing US tobacco alternatives market, Altria on Thursday announced a joint venture with Japan Tobacco to develop and sell two heated tobacco products in the US.

Olczak added that if the offer were to fail, PMI was ready to “proceed autonomously” to develop the IQOS product range in the US.

But PMI said in a statement on Tuesday that it reserves the right to “reduce or waive the acceptance level condition” after the deadline for the deal on November 4.

Two shareholders, who asked not to be named, told the Financial Times they expected PMI would struggle to cross the 90 per cent threshold and would probably drop the level before attempting to buy up the stock further down the line.

If PMI fails to reach the 90 per cent threshold for shareholder acceptances, its ability to fully control and integrate Swedish Match will be limited by local laws protecting minority shareholders, according to analysts.

Swedish Match’s share price was up by 0.2 per cent to SKr114 in early afternoon trading in Stockholm.

Elliott and Davidson Kempner declined to comment.