Philip Morris and Carlyle face possible auction contest for Vectura

Shares in asthma inhaler maker rose 5% as investors responded to the prospect of a takeover battle

Last modified on Mon 9 Aug 2021 10.28 EDT

Tobacco company Philip Morris International and US private equity group Carlyle could go head-to-head in a rare auction process to resolve the £1bn takeover battle for Vectura, the asthma inhaler maker.

A five-day auction process will begin on Wednesday if final bids are not forthcoming by 5pm on Tuesday, regulators at the UK takeover panel announced.

Shares in Vectura gained 5% to reach 172p on Monday, valuing the Chippenham, Wiltshire-based company at more than £1bn, as investors responded to the prospect of a continued tug-of-war.

Marlboro maker Philip Morris International (PMI), which advocates a smoke-free future but still makes more than 75% of its revenue by selling cigarettes, put in an increased offer above £1bn over the weekend, trumping an offer from rival suitor Carlyle.

The raised bid from PMI at 165p a share values Vectura at £1.02bn, compared with the 155p offer on the table from Carlyle, which values the firm’s equity at £928m.

Vectura’s board had previously recommended that investors accept the offer from Carlyle but withdrew that recommendation on Monday ahead of a potential auction.

Vectura is a specialist in inhaled medicines, including devices for the treatment of asthma, a condition that can be worsened by smoking.

Anti-smoking campaigners and politicians have criticised Vectura for proposing to sell up to a tobacco company.

The chief executives of Cancer Research UK, Asthma UK, the British Lung Foundation and Action on Smoking and Health wrote to the business secretary, Kwasi Kwarteng, and the health secretary, Sajid Javid, calling on the government to block the deal.

The charities said they feared PMI would use Vectura to “legitimise tobacco industry participation in health debates within the UK”.

Vectura has also been warned that it could be blocked from taking part in research programmes with universities if it succumbs to PMI’s advances.

PMI has made much of its vision for a “smoke-free world”, underpinned by a strategy to help cigarette smokers wean themselves off smoking and switch to its alternative products such as e-cigarettes and vapes, which it says are less harmful.

The company’s chief executive, Jacek Olczak, said last month that smoking could be banned in the UK within 10 years, adding that the company could “see the world without cigarettes … and actually, the sooner it happens, the better it is for everyone”.

But the company’s financial results indicate that it has a long way to go before its purported ambitions are realised.

PMI still makes three-quarters of its $28bn (£20bn) in annual revenue from “combustible” products that involve the burning of tobacco.

It shipped 628.5bn cigarettes last year, although that marked an acceleration of its reduction in cigarette sales, which were, 707bn in 2019, 740bn in 2018 and 762bn in 2017.

If it were to reduce cigarette sales by the same volume every year as it did in 2020, it would cease to sell them altogether some time in 2029.

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