ALEXANDRIA, Va.—Philip Morris International raised its offer to purchase Swedish Match by 9.4% and will regain the rights to its IQOS heated-tobacco device from Altria for $2.7 billion, reports the Wall Street Journal.

In May, the board of Swedish Match recommended that shareholders approve a 161.2 billion Swedish krona (US$16.2 billion) all-cash offer from Philip Morris for shares of the OTP company, maker of snus, cigars and the market-leading ZYN brand tobacco-free nicotine pouch.

Philip Morris is now offering 116 Swedish kronor, equivalent to $10.34, for each Swedish Match share. The company had originally offered 106 Swedish kronor in May. Because of the appreciation of the U.S. dollar against the Swedish krona, the value of the deal has not changed from the original offer. The current offer from Philip Morris values Swedish Match at 176.4 billion Swedish kronor or $15.7 billion.

Philip Morris told the Journal that inflation, volatility in equity markets and changes in interest rates played a role in determining the new offer price. The company said it won’t increase its bid further.

Swedish Match dominates the oral nicotine category, controlling nearly half of the global market, followed by British American Tobacco PLC and Altria Group Inc. Philip Morris is eyeing additional growth in the OTP category as it moves to become a majority smoke-free business by 2025.

The deal between Philip Morris and Swedish Match is conditional upon the tobacco company gaining at least 90% of Swedish Match’s shares. The Journal says that this would allow Philip Morris to squeeze out any residual shareholders by paying them the same price as other investors, and then fully fold the business into its own.

Philip Morris said it is prepared to abandon the offer if it can’t reach 90% support level. “Should the offer fail, we are well prepared to proceed autonomously to develop IQOS and the rest of our smoke-free portfolio in the U.S.,” Philip Morris Chief Executive Jacek Olczak told the Journal.

Philip Morris’ deal with Altria to purchase back the U.S. commercialization rights for IQOS will take effect on April 30, 2024, and will allow Philip Morris to market IQOS in the U.S.

In December, Altria and Philip Morris were ordered by the U.S. International Trade Commission to stop selling IQOS in the United States. The ruling said that the IQOS device infringes on two patents held by R.J. Reynolds Tobacco Co. The U.S. Food and Drug Administration allowed Altria to market the product as a potentially "reduced-risk" nicotine product.

Philip Morris has said it plans to begin manufacturing IQOS in the U.S. next year so that it may resume selling the products in the U.S. The company would use the Swedish Match sales division to market IQOS but is also prepared to sell the product without Swedish Match, according to Olczak. The deal includes an upfront $1 billion payment with the rest paid by July 2023, Altria said.

The Journal reports that both IQOS, which is sold outside the U.S., and the proposal to buy Swedish Match are part of Philip Morris’s strategy to generate more than 50% of annual net revenue from smoke-free products by 2025, up from about 30% currently.