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Tobacco titan Philip Morris International Inc. (NYSE: PM) is snapping up the South African operations of Swedish Match for a cool 1.75 billion rand, or roughly $224.7 million. The acquisition is part of PM's broader strategy to gain a foothold in the smokeless tobacco arena. Currently, Swedish Match South Africa is the market leader in the South African pipe tobacco and snuff categories.
"This financially attractive acquisition represents an excellent strategic fit for our business in South Africa," said Jean-Claude Kunz, PM's president of Eastern Europe, Middle East, and Africa. "We firmly believe that merging the two businesses will provide us with the talent, infrastructure, and expertise to further build and grow our portfolio of strong brands in this important market."
The deal is still subject to regulatory approval by South African authorities, but is expected to be complete by the end of the fourth quarter. PM said the acquisition will be immediately marginally accretive to earnings per share.
Traders seem relatively unimpressed, with the shares dawdling in negative territory at last check. PM is poised atop technical support from its 10-week moving average, but resistance in the $45 region looms overhead. This area has capped the stock's rally attempts since October 2008.
Meanwhile, short-selling activity has ramped up in recent weeks. The number of PM shares sold short rose by 19.5% during the past month, and now accounts for roughly 2% of the equity's available float. This isn't a ridiculously hefty accumulation of shorted shares, representing just 4.2 times PM's average daily trading volume, but it's worth noting nonetheless -- the current number of shares sold short represents an all-time high since the stock spun off from Altria Group (NYSE: MO) in March 2008.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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