Marlboro Maker Altria’s Board Approves $13 Billion Investment in E-cigarette Company JUUL
The board of directors at Altria have approved a $12.8 billion investment in E-cigarette company JUUL. The leading e-cigarette manufacturer. Plans to make an official announcement before the market opens on Thursday are on the table. People who’re familiar with the matter told CNBC. Juul’s board is meeting to consider the deal.
Altria, the tobacco giant, will invest $12.8 billion for a 35% stake in JUUL, valuing the vape company at $38 billion. According to the people familiar with the matter. The deal, which combines the best-selling cigarette maker with the best-selling e-cigarette maker, comes at a time when both companies are under pressure.
For JUUL, the deal marks a turning point. It has positioned itself as an anti-tobacco company. Whose mission is to help adults wean themselves off traditional cigarettes. Cigarettes kill about half a million Americans each year. However, through the deal, JUUL will be partly owned by one of the world’s largest tobacco giants.
As a result, Juul has set a number of conditions to help ensure that the Altria deal furthers its goals. As part of the deal, Altria would add Juul coupons to Marlboro and other cigarette packages. Plus provide Juul with some of its prime shelf space, people familiar with the matter said.
$13 Billion Investment in E-cigarette Company JUUL
The deal will also help Juul cope with the recent challenge. As the number of high school students using e-cigarettes has soared, regulators are working on policies to limit where JUUL can sell its fruity nicotine pods. Lawmakers and public health officials have also sharply criticized the company for its popularity among teenagers. Some people argue that these young adults never would have smoked cigarettes but now they have become addicted to nicotine.
Altria‘s stake will offer Juul access to its experienced team of regulatory experts. It will also add support distribution and marketing efforts, people familiar with the matter said.
Talks between Altria and Juul have been on and off over the past 14 months. Juul has also communicated with Japan Tobacco and British American Tobacco, though it isn’t clear how seriously the parties engaged, one of the people said.
Talks between Altria and JUUL began heating up in October. The company tried to hammer out key sticking points, the people familiar with the matter said. One obstacle was that Altria owns e-cigarettes MarkTen and GreenSmoke, which Altria agreed to close as part of the deal. Earlier this month, Altria announced plans to discontinue the brands, citing financial performance.
$13 Billion Investment
JUUL split from Pax, its parent company, in 2017. And in just three years, it has captured 75% of the e-cigarette market. With most of the growth coming from the past year. JUUL has about $1.5 billion in revenue. As of December 1, the entire category had sales of $2.95 billion.
Now, when smokers give up Marlboro for Juul, Altria loses. That would change if Altria owns part of Juul.
Compared with traditional cigarettes, JUUL pods may also be more profitable because they are typically untaxed and don’t have to pay costs associated with the Master Settlement Agreement. Which is a 1998 deal negotiated between state attorneys general and tobacco manufacturers to end a wave of ongoing lawsuits?
At the same time, Altria is awaiting a decision from the Food and Drug Administration on iQOS. A new heated tobacco product of Philip Morris International.
Investment in JUUL
The device heats tobacco rather than burning it. The aim is to prevent burning while providing smokers with the nicotine they want. Burning is a chemical process that produces toxins in cigarettes. Philip Morris International has already sold iQOS in 46 overseas markets. The company said it expects a decision from the Food and Drug Administration by the end of the year.
For Altria, the deal is its second transformative investment in weeks. It invested $1.8 billion for a 45% stake in Cronos, a Canadian cannabis company. Both investments come at a time when cigarette sales are falling faster than expected, threatening Altria‘s usual strategy of raising prices to offset falling sales.
JUUL refused to comment. Altria, Japan Tobacco and British American Tobacco did not immediately respond to CNBC‘s requests for comment.
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