Juul announced that Altria had invested $12.8 billion into the e-cigarette startup, well for a 35% stake. The deal values Juul at $38 billion, roughly twice the company’s most recent valuation.
Altria’s investment stretches it a position in the fast-growing e-cigarette industry, which serves about 6.9 million adults. Beside that, 34 million adults in the US still smoke cigarettes.
After the contract closes, Juul can leverage Altria’s tobacco retail network to reach adult smokers, with direct communications through cigarette-pack inserts and mailings to adult smokers via Altria databases. And Juul will remain fully independent, with its flavored products available only on its website, according to a statement.
Altria agreed not to secure Juul shares
As part of the deal, Altria agreed not to secure Juul shares above its 35% interest for the next six years and is dedicated to participating in the vapor category directly through its partnership with Juul.
“We are taking significant action to prepare for a future where adult smokers overwhelmingly choose noncombustible products over cigarettes by investing $12.8 billion in Juul, a world leader in switching adult smokers,” Altria CEO Howard Willard said in a press release.
“We have long said that providing adult smokers with superior, satisfying products with the potential to reduce harm is the best way to achieve tobacco harm reduction. Through Juul, we are making the biggest investment in our history toward that goal. We strongly believe that working with Juul to accelerate its mission will have long-term benefits for adult smokers and our shareholders.”
Altria started to search for new products to sell its customers.
In November, the Food and Drug Administration imposed new rules on vaping meant to keep a new generation from pleasant addicted to nicotine. It also said it was looking into new restrictions on ethanol cigarettes. As a result, Juul took measures designed to prevent underage vaping and focus its marketing on adult smokers, and Altria started to search for new products to sell its customers.
A deal between the two companies “should come as no surprise” because Altria needs innovations to offset its softer top-line growth, according to a group of Cowen analysts led by Vivien Azer.
“With a ~30% share of the vapor category, Juul has been a game changer in the nicotine category,” Azer said in a note out on Thursday.
“Given MO’s dominance in the broader nicotine category, MO will offer JUUL access to its shelf sets at retail (only for tobacco and menthol flavors, other flavors will continue to be sold online). This will broaden JUUL’s reach, where the company had been in 90,000 retail doors, far fewer than MO’s reach of 230,000 retail outlets.”
According to Azer, Altria’s management in October told investors throughout its third-quarter earnings call that the secular decline in combustible cigarettes had accelerated, driven by consumer transition to e-cigarettes.
Thursday’s broadcast isn’t the only deal Altria has made recently. On December 7, the cigarette producer announced it intended to invest 2.4 billion Canadian dollars, or $1.8 billion, into the cannabis producer Cronos, to gain entry into the marijuana space.