Philip Morris in Talks to Buy Swedish Match; Limited Room for a Premium, Deal May Hold Hidden Value

Philip Morris International and Swedish Match (not covered) have confirmed talks are ongoing between them regarding a potential acquisition of Swedish Match by Philip Morris. Financial terms were not disclosed but we suspect there is little wiggle room for a deal to create value at a price above Swedish Match's market cap of SEK 123 billion at the close of business on May 9. However, we do think there could be strategic and financial benefits from the access to the U.S. market that Philip Morris would gain. We retain our USD 103 fair value estimate for Philip Morris but will review this depending on whether the deal closes and on what financial terms.