Employees of a UK-based medical inhaler maker received a letter last year from their new boss, who had just bought the company for £1bn. “It may come as a surprise to many of you,” he wrote, “that PMI is evolving into a broader healthcare and wellness company.” 

PMI is Marlboro cigarette-maker Philip Morris International. And he was right: they were surprised.

Now PMI has pulled off an even bigger acquisition, agreeing to spend $16bn on Swedish Match, the world leader in snus, a sort of tiny toxic tea bag that you wedge between your lip and gums to infuse nicotine into your bloodstream.

It is an odd fit for a healthcare and wellness company. Snus is banned in most of Europe and packaging warns that it may cause mouth cancer and tooth loss.

PMI held an analyst call where the only use of the word “healthy” was to discuss investor returns: Swedish Match is especially attractive to PMI because it is big in the US, the biggest tobacco market after China.

Pouches are undoubtedly less harmful than cigarettes but what unites the inhalers and the pouches as PMI product lines is you do not set fire to them. The phrase “smoke free” was uttered more than 40 times on the investor call to discuss the deal. PMI is pursuing a target of making 50 per cent of its net revenues from smoke-free products by 2025 and Swedish Match will give it the option to try to convert some of the 34mn American cigarette smokers.

Tobacco companies, like oil majors, have a choice to make: 1. get ahead of the future where the product that sustained you for the past couple of hundred years becomes unsellable or 2. stick with the status quo, keep printing money and pay a fat dividend.

ExxonMobil used to be admirably clear in its embrace of option two. None of the Beyond Petroleum waffle, just a simple message: “We are an oil company. We drill oil. You use it in loads of stuff, you hypocrites.” (I paraphrase).

Yet investors now demand option one. There is a business case for action; take the cautionary tale of Blockbuster passing on the chance to buy Netflix in 2000.

For big tobacco bold moves are fraught, though. PMI’s rival Altria — which owns the US licence for Marlboro — seemed to have identified the next big thing in 2018 when it paid $12.8bn for a 35 per cent stake in trendy vaping company Juul.

Unfortunately, Juul was too cool. Teenagers latched on to e-cigarettes that looked like USB flash drives and came in fruit and even crème brûlée flavours. After initially dithering, US regulators clamped down on the product. In the aftermath, Altria lost its CEO and wrote off most of Juul’s value — today it is booked at just $1.7bn. A smaller bet by Altria on a cannabis company Cronos has also lost money.

So the path is not assured for PMI. But let us wish them luck. Perhaps more of the world’s smokers will stub out their cigarettes and stuff pouches against their gums. And if not? Well, PMI is still selling 600bn cigarettes a year. One way or another, it is a healthy business.

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