INTERNATIONAL - Marlboro cigarette maker Altria Group Inc on Thursday announced it would pay $12.8 billion to take a 35 percent stake in Juul Labs Inc, a marriage between an old-line tobacco giant and a fast-growing electronic-cigarette rival looking to make inroads among smokers.
The deal values San Francisco-based Juul at $38 billion, more than double the roughly $16 billion valuation it fetched in a July private funding round, highlighting what Altria sees as its next phase of growth in the face of declining smoking rates and cigarette sales in the United States.
“We are taking significant action to prepare for a future where adult smokers overwhelmingly choose non-combustible products over cigarettes,” Altria Chief Executive Howard Willard said in a statement.
For Juul, which has risen swiftly over the last three years to become the US market leader in e-cigarettes, the Altria investment is expected to give it more prominent distribution in convenience stores and other traditional retail channels.
The companies said Juul will be able to reach Altria’s customers through advertisements in traditional packs of cigarettes as well as direct mailers to customers.
Altria also brings years of lobbying expertise in Washington that could benefit Juul as the company navigates heightened federal scrutiny over its products’ popularity among teenagers.
“Our success ultimately depends on our ability to get our product in the hands of adult smokers and out of the hands of youth,” Juul Chief Executive Kevin Burns said in a statement Thursday, adding that “this investment and service agreement helps us do just that.”
Under terms of the deal, Altria is subject to a standstill agreement under which it may not buy additional Juul shares above its current interest. Altria has also agreed not to sell or transfer any Juul shares for six years from the closing of the deal.
The deal is subject to antitrust clearance and would give Altria the ability to nominate directors representing a third of Juul’s board, the cigarette giant said.”
The company also said that it would participate in the e-vapor category only through Juul for at least six years.
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Juul’s devices, which vaporize a nicotine-laced liquid and resemble a USB flash drive, grew from 13.6 percent of the market in early 2017 to more than 75 percent this month, according to a Wells Fargo analysis of Nielsen retail data. In its release Thursday, Altria said Juul represented approximately 30 percent of the US e-cigarette space, when factoring in online sales and products in specialty stores such as vape shops.
Federal data released last month showed a 78 percent year-on-year increase in high school students who reported using e-cigarettes in the last 30 days, coinciding with the rise in Juul’s popularity.