Some small shareholders in Swedish Match sell out ahead of bid deadline

Swedish Match’s (SWMA.ST) small shareholders have sold parts or all of their holdings to lock in profits even though they oppose Marlboro-maker Philip Morris International’s (PM.N) $16 billion bid for the company.

PMI launched its bid for the maker of tobacco and nicotine oral products at 106 crowns a share in May, and in October raised its offer to 116 Swedish crowns ($10.60) after Swedish Match’s shares traded consistently above the original bid price.

The stock has doubled since the first PMI bid in May.

The deadline for shareholders to tender shares in support of the bid was 1600 GMT on Friday.

Protean Funds, which had 500,000 Swedish Match shares, sold its entire holding this week but said it continued to hope the bid would fail “so we again can become shareholders”.

Protean Funds had said previously it wanted to fight for Swedish Match and thought PMI’s bid undervalued the company.

But the fund said in a letter to its investors this week the downside if the bid fails was material as the shares might risk falling to 80-90 Swedish crowns and as a result it had sold its holding.

John Hempton, co-founder of Sydney-based Bronte Capital, is another investor who has been against the deal since it was announced in May.

Hempton originally held a stake of around 1% but said he had sold some shares into the market ahead of the tender deadline and the stake was now less than 1%.

The Australian investor also said he hoped the deal would fail and that he then could buy back the shares, and more, at a lower price.

DNB markets analyst Jesper Ingildsen said: “All the shares they sell are probably being scooped up by the hedge funds”.

He also said he thought the majority of the hedge funds would tender their shares for the SEK 116 that was currently on the table.

The analyst said he believed many of the smaller investors were probably selling into the market. “But the more that sell the higher the chances are that the bid will go through,” Ingildsen said.

Others were holding firm. Framtiden Partnerships which has been a shareholder for nearly two decades, said it won’t tender its stake of almost 1% and hopes others would also refrain.

It is still not known what activist investor Elliott Management, which owns over 10% in Swedish Match, has done.

Under Swedish law, PMI needs 90% of shareholders to agree to the deal to get full control of Swedish Match.

Elliott, with its stake of more than 10%, could scupper the deal if it rejects the offer. Elliot had no comment on Friday.

PMI is allowed to lower the 90% threshold, but this would mean PMI would become a majority shareholder in Swedish Match which would remain listed.