Philip Morris to Raise Offer for Swedish Match and Buy U.S. Rights for IQOS

The move is made easier by the strength of the U.S. dollar against the Swedish currency since the deal was struck. Other factors that went into the revised offer were inflation, volatility in equity markets and changes in interest rates, one of the people said. Philip Morris has been under pressure from Elliott Management Corp. and other investors to sweeten the bid.

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 has been conditional on the tobacco company gaining more than 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.

But Philip Morris has been under pressure by a group of investors led by Elliott, which holds a 7.25% stake in Swedish Match, to raise the bid after they opposed it as too low. Without their support, Philip Morris would need to lower the minimum threshold to complete the offer.

That is risky, however, because Swedish Match’s remaining minority shareholders could frustrate Philip Morris’s ability to fully integrate the business. Any move to transfer assets or carry out related-party transactions would require Philip Morris to hold a shareholder vote, which Philip Morris couldn’t join, according to Sweden’s takeover rules.

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