Philip Morris, Swedish Match to Sell Snuff Globally

02/04/2009

Feb. 3 (Bloomberg) -- Philip Morris International Inc., the largest publicly traded cigarette company, will jointly sell snuff worldwide with Swedish Match AB, broadening the company's product range as it targets emerging markets for growth. The companies also said today that they'll press the European Union to scrap a ban on Nordic-style smokeless tobacco, known as snus, which they say is a less unhealthy alternative to cigarettes. Swedish Match shares jumped on speculation the deal may be the prelude to a merger if Philip Morris succeeds in widening the appeal of snus, which is pasteurized and put against the upper lip. Cigarette makers have sought makers of smokeless tobacco to tap faster growth, with Altria Group Inc., Philip Morris' former parent, buying Skoal maker UST Inc. last month. "Markets like Russia will be the opportunity, where snus is already sold but with limited presence and knowledge," said David Hayes, an analyst at Nomura in London. The EU has said there's evidence that snus helps some smokers quit and is less likely to lead to lung cancer than cigarettes, though all tobacco products contain carcinogens, may cause other cancers and may make heart attacks more deadly. 'Long-Term Commitment' "This can be a very interesting proposition for Asia, and possibly parts of Africa," Swedish Match Chief Executive Officer Lars Dahlgren said in an interview today. "This is a long-term commitment. We will not do it overnight." He wouldn't comment on whether Swedish Match and New York-based PMI discussed a takeover. Altria spun off PMI last year after being pressured by investors who wanted faster overseas growth and less risk from U.S. smokers' lawsuits. Marketing restrictions and consumers' tobacco habits are among the obstacles Swedish Match and PMI will face, Dahlgren said. The U.S. moist snuff market has recently been growing at an annual rate of 4 percent to 5 percent, he added. Swedish Match has sought to break out of its home market, which has an exemption from the EU's ban on historic grounds. Snus isn't fermented and doesn't make the user spit, turning off some consumers used to chewing tobacco and leading UST to abandon U.S. snus trials after seven years. "It's a very difficult thing to persuade people to put tobacco in their mouths and suck," said Jonathan Fell, an analyst at Deutsche Bank AG, who has a "hold" rating on Swedish Match. "It will be a long haul for everybody," and probably won't have a meaningful effect on profit for five to 10 years, he said. Bid Speculation PMI advanced 91 cents to $38.32 at 4:02 p.m. in New York Stock Exchange composite trading. Swedish Match rose 3.50 kronor, or 3.2 percent, to 114.75 kronor in Stockholm trading. "The market will speculate on the closer relationship between PMI and Swedish Match, and whether that ultimately means PMI moves to gain full control of the joint venture and the rest of Swedish Match," said Nomura's Hayes. Analysts have repeatedly said the Stockholm-based company could become a takeover target as more developed nations restrict smoking. The U.K. cigarette market shrank 4 percent in 2008 following the introduction of public smoking restrictions in the previous year, Imperial Tobacco Group Plc said today. Evidence that snus may have helped Swedish smokers stop isn't sufficient to lift an EU ban because it's "not possible to extrapolate the patterns of tobacco use" to other countries, a scientific committee said in a report last year. Snus is at least 50 percent less likely to lead to heart disease than cigarettes, the report said. Enditem