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Beyond cigarettes: Philip Morris lights up race with Swedish Match bid

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© Reuters. FILE PHOTO: A Swedish Match concept store for the tobacco group’s moist powder tobacco “snus” in Stockholm, Sweden October 24, 2018. REUTERS/Anna Ringstrom/File Photo

By Richa Naidu

LONDON (Reuters) -Philip Morris International’s $16 billion bid for smaller rival Swedish Match highlights the urgency among cigarette makers to tap new and potentially less harmful alternatives as regulation and health concerns snuff out traditional smokes.

Marlboro maker Philip Morris (NYSE:PM) agreed on Wednesday to buy Swedish Match, one of the world’s biggest makers of oral nicotine products. These include Snus – a sucked tobacco product the firm says is less harmful than smoking – as well as Zyn nicotine pouches, which are used the same way and tobacco-free.

Both are niche products, but are growing, with Swedish Match’s almost 50% share of the global tobacco-free oral nicotine market putting it ahead of both British American Tobacco (NYSE:BTI) and Altria Group (NYSE:MO) in that category.

Thomas Russo, managing partner at Gardner Russo & Gardner which owns shares in both Philip Morris (PMI) and Swedish Match, welcomed the tie-up as opening a “new field” for PMI’s smoke-free products, which include iQOS tobacco heating devices.

“It’s a deal that would continue industry consolidation that’s been underway for the past decade,” he said.

Russo’s U.S. investment firm has a 0.47% stake in PMI and a 0.09% holding in Swedish Match, according to Refinitiv data.

Tobacco companies have scrambled over the past decade to find new markets as regulators crack down on cigarettes and more people quit smoking due to the health risks.

Snus – a Swedish-style snuff – is a moist, smoke-free tobacco product that is placed behind the upper lip, either loose or in portioned sachets. The global market for snus increased from 7,000 tonnes in 2008 to nearly 10,000 tonnes in 2019, according to data firm Euromonitor.

In 2019, the U.S. Food and Drug Administration approved the marketing of Swedish Match’s Snus as less harmful than cigarettes.

DEALMAKING

The possible PMI-Swedish Match deal is the latest in a string of investments by the $900 billion-plus tobacco industry in potentially lower risk products, including e-cigarettes and tobacco heating devices.

Euromonitor estimates the global market for smokeless tobacco, e-vapour products and heated tobacco was about $67 billion in 2021, nearly three times the size it was in 2016.

PMI Chief Executive Jacek Olczak said last year his company had spent more than $8 billion on reduced risk products since it began developing them a decade ago.

He said then that PMI would reach its 2025 target for 50% of sales from smoke-free products by growing its existing business, rather than acquisitions.

But buying Swedish Match, would give PMI – which was spun off from Altria in 2008 – an established U.S. market and distribution system, Bernstein analyst Callum Elliot said.

“That said, the deal hasn’t gone through yet,” Elliot added. “I imagine that Swedish Match is a business that could be appealing to other players within the industry, and we wouldn’t be surprised to see a counter bid from other companies, particularly Japan Tobacco (OTC:JAPAF) Inc.”

A Japan Tobacco spokesperson said the company does not comment on rumours or speculation.

COMPETITION

PMI, the No.3 cigarette company in 2020 after China National Tobacco Corp and British American Tobacco (BAT (LON:BATS)), has not been alone in its attempts to expand beyond combustible tobacco.

News of its move on Swedish Match sent Altria shares down about 9% on Tuesday as investors worried about a step up in competition for the U.S. company.

In 2018, Altria bought a 35% stake in e-cigarette company Juul Labs Inc for $12.8 billion. A year later, it bought 80% of Burger Söhne Holding AG, allowing it to distribute the Swiss company’s On! oral nicotine pouches.

Other rivals are watching with interest.

“We think a multi-category strategy in tobacco and nicotine is the right one,” BAT’s chief marketing officer Kingsley Wheaton told Reuters on Tuesday.

BAT is the world No.2 in tobacco-free oral nicotine products behind Swedish Match. Sales at its “new categories” division jumped 51% to 2.05 billion pounds ($2.52 billion) last year, helped by its e-cigarettes and oral nicotine products.

The London-listed company is aiming for the division to reach revenues of 5 billion pounds, and profitability, by 2025.

“As our business transforms, our portfolio transforms, and, so too, our competitive landscape will evolve,” Wheaton said.

While PMI is pursing Swedish Match, other rivals prefer to go it alone.

Imperial Brands (OTC:IMBBY) is focusing on developing its own products in the heated tobacco market, particularly in Europe, a spokesperson said.

But there is still all to play for.

“The whole next-generation product space is still very nascent – no one in the industry has yet created any next generation product which really, fully replicates the experience of a smoked cigarette or a traditional cigarette,” the spokesperson said.

($1 = 0.8131 pounds)

Stock Markets

Dow Futures Tick Higher as Major Indices Rebound

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By Oliver Gray 

Investing.com – U.S. stock futures moved modestly higher on Tuesday evening after major benchmark indices rebounded from recent losses during regular trade, however, traders remain cautious of a potential recession after Federal Reserve Chair Jerome Powell noted at a Wall Street Journal conference on Tuesday that “there won’t be any hesitation” about raising rates until inflation is under control.

By 6:45pm ET (10:45pm GMT) Dow Jones Futures and Nasdaq 100 Futures were up 0.1% apiece while S&P 500 Futures gained 0.2%.

In extended deals, QualTek Services Inc (NASDAQ:QTEK) popped 23.1% after reporting Q1 losses of 20 cents per share, beating expectations of a 48 cents loss, while revenue came in at $148.2 million versus $137.51 million expected.

Corporacion America Airports (NYSE:CAAP) lifted 0.2% after reporting Q1 EPS of $0.16 versus x expected on revenues of $258.1 million versus $226.74 million expected.

QuickLogic Corporation (NASDAQ:QUIK) fell 6% after report Q1 losses of 6 cents per share versus losses of 7 cents expected. Revenue for the quarter came in at $4.1 million versus estimates of $4 million.

Agilysys Inc (NASDAQ:AGYS) gained 11.3% after reporting Q4 EPS of 24 cents, beating estimates of 17 cents, with revenues coming in at $46.6 million versus estimates of $43.78 million.

Corporate earnings are set to continue on Wednesday, with Target Corporation (NYSE:TGT) and Lowe’s Companies Inc (NYSE:LOW) reporting results before the opening bell. Ahead in the week, investors will be monitoring fresh data for housing starts and building permits due out Friday morning.

During Tuesday’s trading session, the Dow Jones Industrial Average jumped 431.17 points, or 1.34%, to 32,654.59, the S&P 500 added 2% to 4,088.85 and the NASDAQ Composite added 2.76% to 11,984.52.

Major financial players were boosted after Warren Buffett’s conglomerate revealed it added a nearly $3 billon stake in Citigroup Inc (NYSE:C) during the first quarter. Citizens Financial Group Inc (NYSE:CFG) gained 3.7% JPMorgan Chase & Co (NYSE:JPM) added 3.3%, Bank of America Corp (NYSE:BAC) lifted 3.4% and Morgan Stanley (NYSE:MS) gained 3.8%.

Travel related companies popped after United Airlines raised its revenue outlook for the second quarter on improved consumer demand. JetBlue Airways Corp (NASDAQ:JBLU) lifted 8.2%, Delta Air Lines Inc (NYSE:DAL) gained 6.7%, American Airlines Group (NASDAQ:AAL) added 7.7% and United Airlines Holdings Inc (NASDAQ:UAL) lifted 7.9%.

On the bond markets, United States 10-Year yields were at 2.995%.

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Glass Lewis backs McDonald’s directors in boardroom fight with Carl Icahn

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© Reuters. FILE PHOTO: A sign with the logo is on display near a McDonald’s restaurant in Moscow, Russia May 16, 2022. REUTERS/Evgenia Novozhenina

2/2

By Svea Herbst-Bayliss

BOSTON (Reuters) – Proxy advisory firm Glass Lewis on Tuesday recommended McDonald’s Corp (NYSE:MCD) investors vote for the company’s directors, dealing a setback to billionaire investor Carl Icahn’s efforts to replace two directors.

“The Dissident (Icahn) has failed to make a sufficiently compelling case to warrant the boardroom changes it is seeking here,” Glass Lewis wrote in the report seen by Reuters.

A representative for Icahn did not immediately have a comment.

The report came one day after Institutional Shareholder Services, Glass Lewis’ larger rival, also recommended that shareholders back the company’s nominees. McDonald’s shareholders will meet on May 26.

Icahn nominated candidates to the fast-food restaurant’s board to hold the company accountable for pledges it made a decade ago on sourcing pork.

McDonald’s says it has worked to change its pork sourcing. But it is behind schedule on a plan to stop buying pork from suppliers that confine pigs in small crates during pregnancy. Both ISS and Glass Lewis say Icahn has raised awareness for animal rights.

“We acknowledge (Icahn’s) efforts to seek improvements to animal welfare conditions is a worthy and noble endeavor,” Glass Lewis wrote. But the advisory firm also criticized Icahn, saying he had taken a “decidedly simplistic and myopic view of ESG concerns, with no substantive regard given to the economics of the Company’s business nor to the creation of shareholder value.”

McDonald’s said Icahn’s two nominees lack the broader expertise needed to serve on the company’s board. Glass Lewis wrote that Icahn’s candidates “lack the requisite background, qualifications and experience for serving on the board of a large multinational firm” like McDonald’s.

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China Eastern crash probe eyes intentional action – sources

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© Reuters. FILE PHOTO: Rescue workers work at the site where a China Eastern Airlines Boeing 737-800 plane flying from Kunming to Guangzhou crashed, in Wuzhou, Guangxi Zhuang Autonomous Region, China March 24, 2022. REUTERS/Carlos Garcia Rawlins/File Photo

By David Shepardson

WASHINGTON (Reuters) -Investigators probing the crash of a China Eastern Airlines (NYSE:CEA) jet are examining whether it was due to intentional action taken on the flight deck, with no evidence so far of a technical malfunction, two people briefed on the matter said.

The Wall Street Journal reported earlier Tuesday that flight data from one the Boeing (NYSE:BA) 737-800’s black boxes indicated that someone in the cockpit intentionally crashed the plane, citing people familiar with U.S. officials’ preliminary assessment.

Boeing Co , the maker of the jet, and the U.S. National Transportation Safety Board (NTSB) declined to comment and referred questions to Chinese regulators.

The Boeing 737-800, en route from Kunming to Guangzhou, crashed on March 21 in the mountains of Guangxi, after a sudden plunge from cruising altitude, killing all 123 passengers and nine crew members aboard.

It was mainland China’s deadliest aviation disaster in 28 years.

The pilots did not respond to repeated calls from air traffic controllers and nearby planes during the rapid descent, authorities have said.

The Civil Aviation Administration of China said on April 11 in response to rumours on the internet of a deliberate crash that the speculation had “gravely misled the public” and “interfered with the accident investigation work.”

China Eastern could not immediately be reached for comment Tuesday. The Wall Street Journal said the airline had said in a statement that no evidence had emerged that could determine whether or not there were any problems with the accident aircraft. The Chinese Embassy declined to comment.

The 737-800 is a widely flown predecessor to Boeing’s 737 MAX but does not have the systems that have been linked to fatal 737-MAX crashes in 2018 and 2019 that led to a lengthy grounding of the MAX.

China Eastern grounded its entire fleet of 737-800 planes after the crash, but resumed flights in mid-April in a move widely seen at the time as ruling out any immediate new safety concern over Boeing’s previous and still most widely used model.

In a summary of an unpublished preliminary crash report last month, Chinese regulators did not point to any technical recommendations on the 737-800, which has been in service since 1997 with a strong safety record, according to experts.

NTSB Chair Jennifer Homendy said in a May 10 Reuters interview that board investigators and Boeing had traveled to China to assist the Chinese investigation. She noted that the investigation to date had not found any safety issues that would require any urgent actions.

Homendy said if the board has any safety concerns it will “issue urgent safety recommendations.”

The NTSB assisted Chinese investigators with the review of black boxes at its U.S. lab in Washington.

Shares of Boeing closed up 6.5%.

A final report into the causes could take two years or more to compile, Chinese officials have said. Analysts say most crashes are caused by a cocktail of human and technical factors.

Deliberate crashes are exceptionally rare. Experts noted the latest hypothesis left open whether the action stemmed from one pilot acting alone or the result of a struggle or intrusion but sources stressed nothing has been confirmed.

In March 2015, a Germanwings co-pilot deliberately flew an Airbus A320 into a French mountainside, killing all 150 on board.

French investigators found the 27-year-old was suffering from a suspected “psychotic depressive episode,” concealed from his employer. They later called for better mental health guidelines and stronger peer support groups for pilots.

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