Tuesday, May 10, 2022

Swedish Match: how not to behave when you are kissed on the dick by a rainbow

There are confirmed rumours that Swedish Match, a Swedish company focussed on oral nicotine delivery (snus, chewing tobacco and most importantly "modern oral") is in advanced merger talks with Philip Morris.

I am furious.

Swedish Match is about a ten percent position for my fund - and a core holding. We own about 1 percent of the company. 

The management lucked-in when they came up with what is in my opinion the best nicotine product ever invented and hence founded the whole category of "modern oral". The product gives maximum nicotine hit (think supercharged coffee) with substantially lower health risks. It is however extremely addictive.

As a dirty capitalist out to make money for my clients this is a nirvana. A product that attacks an enormous brand-loyal and addictive market with a superior product. 

Oh, and did I mention the product has strongish patent protections?

This is the stock in the portfolio I have the most hope for the future.

Here is the Swedish Match shipment volumes for Zyn from the last results presentation.

It is a pretty good growth stock and the runway is tremendous.

And it is massively cash generating.

Okay, that is all wonderful. But the management is not. 

I do not normally want to talk negatively about the management of one of my core investments, but this time I am furious.

To be blunt the management might be kindly called dull plodders.

When riding this Zyn tiger they proudly talked about their capital management because all their plants were running at 100 percent capacity. Sure they couldn't supply (hence addict) all the customers who wanted their product, but look at that capital management...

But the plodding management do not stop there. Swedish Match own the biggest lighter and match business in the world. It is not much of a business, returns are merely okay, and volume falls every year because most match volume is driven by (ever falling) cigarette consumption.

But hey, this business has a distribution channel into almost everywhere in the world where cigarettes are sold. Pair that with a decent vape product and you would immediately have one of the world's biggest vape business. I wrote about that opportunity here.

Anyway this utterly unimaginative management team look like they are just going to take the bid from Philip Morris and I am disgusted.

I gave a florid quote to the Wall Street Journal expressing my feelings:

The management team are uninspiring utility execs whose dick got kissed by a rainbow. They are busy selling the rainbow.

They should all be fired for considering this deal.

We own 15.1 million shares.

Anyway, if there is a bid there should be an overbid. I think you can make a PE deal work to 175 (deal looks to be about 100).

And to help you out I have attached a note I wrote a few years ago explaining our Swedish Match position. Enjoy.

And if other angry shareholders want to talk my DMs are open on twitter.



  1. Hi John, quick Q: is the attached doc something you wrote for external consumption, or is this an internal research note? Ty

  2. So maybe the trade is buying into the merger arb for a PE guy to come in

  3. The saying I have always heard is “Kissed on the dick by a fairy and kicked in the arse by a rainbow “ But I think you are spot on here. Way to cheap