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Philip Morris Gives Investors a Nicotine Test - The Wall Street Journal

Shareholders in inhaler company Vectura have been stuck between two less-than-ideal suitors of late. Now, they must decide whether to accept a recommended offer from a tobacco company that could taint their ESG credentials.

Late Thursday, Vectura’s board put its weight behind Philip Morris International ’s £1.1 billion offer for the company, equivalent to $1.5 billion. The Marlboro maker’s approach is audacious considering the London-listed target makes inhalers that are used to treat respiratory illnesses such as asthma. Health organizations have criticized the move and warned that Vectura could be blocked from participating in clinical trials if it is owned by a big tobacco business.

The Carlyle Group said earlier in the week that a rival £958 million offer was final. The buyout firm probably didn’t want to get into an expensive bidding war with such a deep-pocketed competitor. Instead, it argued that shareholders should accept less money for ethical reasons.

But Carlyle didn’t look like an ideal owner of Vectura either, assuming it would have followed the private-equity pattern of cutting costs and flipping the business within a few years. Philip Morris is promising a lavish research and development budget that should be far in excess of the £23.8 million that Vectura’s scientists had to play with in 2020.

Philip Morris thinks it has an ESG angle, although it’s a complicated sell. The tobacco giant wants to reduce its reliance on old-school smokes and make more than half of net revenue from noncombustible products like heated tobacco by 2025. In February, it also set a new target to generate $1 billion in annual revenue from non-nicotine products. The company agreed to buy two inhaler brands this year without much controversy—but both were privately owned.