One of the world’s largest tobacco groups Philip Morris International (PMI) has struck a £1 billion (€1.17 billion) deal to buy a UK developer of inhalers, the next step in what the owner of the Marlboro cigarette brand said was its plan to become a “healthcare and wellness company”.
The New York-listed group on Friday offered 150p a share in cash for Vectura, a pharma group whose technology allows more medicines to be inhaled, gatecrashing a takeover the UK company had agreed with United States private equity group Carlyle in May.
Faced with a terminal decline in cigarette sales across western markets, big tobacco companies are racing to develop alternative products. PMI’s flagship initiative is IQOS, a cigarette-like device that heats, rather than burns, tobacco. They accounted for 30 per cent of the group’s sales in the first quarter.
PMI has said it is focusing on respiratory drug delivery as part of its plan to generate at least $1 billion (€840 million) in annual revenues by 2025 from what it calls Beyond Nicotine products.
“They have been sizing up the respiratory drug delivery field,” said Jonathan Fell, a fund manager at Ash Park Capital. “They were probably ready to strike.”
Shares in Vectura, whose clients include GlaxoSmithKline and Hikma Pharmaceuticals, jumped more than 13 per cent to 154p.
The move from PMI, which has a market capitalisation of $153 billion (€129 billion), comes just a week after the group agreed to pay $820 million (€692 million) for a Danish medical chewing gum maker as part of the multinational’s smoke-free strategy.
Safeguard
But the tobacco industry’s efforts to safeguard its long-term future has not gone smoothly. PMI had planned two years ago to merge with fellow New York-listed tobacco company Altria, which makes Marlboro in the US, in a $200 billion (€169 billion) deal that would have reshaped the industry.
The merger was designed in part to give the two companies greater firepower to push into smokeless devices, as manufacturers vie to provide smokers with less harmful ways of delivering nicotine.
The deal was called off, however, after a regulatory crackdown on e-cigarettes in the US that dented the fortunes of Juul Labs, the vaping company in which Altria had taken a stake.
PMI said on Friday that the decision to buy Vectura was part of its “natural evolution into a broader healthcare and wellness company”.
Based in the Wiltshire town of Chippenham in England, Vectura generated revenues of £191 million (€223 million) last year, up 7 per cent from 2019. It is one of the few companies manufacturing devices that deliver a range of complex inhaled therapies.
The cash offer compares with the 136-pence-a-share that Ventura had agreed with Carlyle. A shareholder meeting planned for Monday to approve the private equity firm’s offer has been adjourned.
“We are surprised that Philip Morris has made an improved offer,” analysts at US brokerage Stifel noted, though they saw the rationale. Given its strategic interest in Vectura, “it is hard to see a competing bid or raised offer from Carlyle”.
Pharma and healthcare companies have emerged among the top targets for the private equity industry, with their relative resilience to economic turmoil and the opportunity they have to benefit from demographic changes such as ageing populations.
Carlyle last year brought in Simon Dingemans, former GlaxoSmithKline chief financial officer, in its efforts to oversee UK buyouts and healthcare deals across Europe. – Copyright The Financial Times Limited 2021
