Altria Group Inc. agreed to buy vaping startup Njoy Holdings Inc. for at least $2.75 billion in cash while bringing its ignominious journey with closely held Juul Labs Inc. to an end, signaling a new direction as the tobacco company keeps trying to accelerate a shift toward cigarette alternatives.
(Bloomberg) — Altria Group Inc. agreed to buy vaping startup Njoy Holdings Inc. for at least $2.75 billion in cash while bringing its ignominious journey with closely held Juul Labs Inc. to an end, signaling a new direction as the tobacco company keeps trying to accelerate a shift toward cigarette alternatives.
Altria announced the Njoy deal Monday, confirming reports from last month. The company could pay as much as $500 million more depending on US Food and Drug Administration approvals of certain Njoy products.
The Richmond, Virginia-based tobacco giant had said in a short statement after the Friday close that it would exchanged its minority stake in Juul for a nonexclusive global license to some of the startup’s heated-tobacco intellectual property.
The Juul swap puts a bow on a $12.8 billion investment from 2018 that dwindled to a value of $250 million at the end of last year. With Juul still facing big regulatory and legal challenges, Altria Chief Executive Officer Billy Gifford said, “we are continuing to explore all options for how we can best compete in the e-vapor category.”
The seller of Marlboro cigarettes in the US last year ended a deal that had prevented it from competing with Juul, clearing the way to buy an e-cigarette firm — like Njoy — or develop its own products.
For its part, Juul says it, too, has “full strategic freedom” to explore other partnerships now that it’s released from the ownership tether.
The exit caps “Altria’s long unfortunate investment saga with Juul,” Kenneth Shea, senior analyst for beverages and tobacco at Bloomberg Intelligence, said by email. Altria is “conceding that it is better off getting something of potential value for it as opposed to the very good chance it could go to zero.”
The question, Shea said, is what is the ultimate value of those new IP rights. Altria needs to move quickly in this part of the market because its exclusive rights to market Philip Morris International’s IQOS heated tobacco products in the US expires in April 2024, he added.
Plus and Minus
Jefferies analyst Owen Bennett, who has a buy rating on Altria, considers the development a clear negative given what was paid for the 35% stake. But there could be positives in the longer term if the intellectual property makes Altria more competitive in heated tobacco or removes antitrust issues in its possible deal for Njoy.
Among Juul’s challenges, the US Food and Drug Administration banned the sale of its products last summer, though they remain on shelves amid a stay. It won initial approval from a judge for a settlement to resolve thousands of lawsuits targeting it as a cause of a youth vaping epidemic. The company got a financial lifeline in the fall from a pair of longtime shareholders that let it shelve a bankruptcy plan.
Altria shares were up 1% at 9:45 a.m. in New York, giving it a market valuation of about $83.9 billion. The shares have dropped about 12% in the past year and are down from a peak of about $78 in 2017.
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