Philip Morris International has agreed to buy Swedish Match AB, a smokeless tobacco company, for $16 billion to accelerate its growth outside cigarettes. The maker of Marlboro is offering small businesses 106 kronor ($10.56) per share, it said in a statement. Shares in Swedish Match traded at a nearly 40 per cent premium to Monday’s close on Wednesday. The Stockholm-based company’s board said shareholders should accept the offer.

The deal with Swedish Match, whose vision statement is “a world without cigarettes”, is listed as one of the biggest transatlantic deals of the year and pushes Philip Morris into the highly competitive oral nicotine product space, many with chewable tablets Relevant. This product is very different from the tobacco of the past. It also opened up the large and growing US smoking-alternatives market for the company, looking for ways to exit the Russia-Ukraine war.

The tobacco giant is at the forefront of industry pressure to diversify beyond cigarettes as regulations become more restrictive. With a string of new products and acquisitions, the company made about 30 per cent of its total revenue in 2015 from non-smoking products. Philip Morris, which developed the IQOS heated tobacco system, agreed to buy asthma drug developer Vectura Group last year. It also bought Fertin Pharma, which makes smoking cessation aids, and OtiTopic, a respiratory drug developer that offers inhalable aspirin to treat heart attacks in late-stage trials.

Philip Morris aims to generate more than half of its net revenue from smoke-free products by 2025. Swedish Match is the leading manufacturer of snus, a smokeless tobacco product that users place between their upper lip and chewing gum, popular in Sweden but banned in much of Europe. The company also makes nicotine pouches called ZYN, sold in the US.

In a research note, Jefferies analyst Owen Bennett said that the deal provides Philip Morris with a broader US distribution network for low-risk products, which could help bring IQOS or vaping products to US consumers.
In March, Swedish Match decided to suspend a planned offshoot of its US cigar business amid heightened regulatory risks.

Philip Morris expects the deal will leave the combined company with net debt three times adjusted earnings. It plans to deleverage over the next few years and has suspended its current three-year share buyback program that began last July. The company said it intends to make no significant changes to Swedish Match’s locations, management and staff as the business complements itself.