Altria Secures $12.8B Minority Stake in Juul

Altria announced on Thursday that it was taking a 35 percent stake in Juul and planned to aggressively help promote the e-cigarette brand.

MO, +1.00% rallied 1.5% in afternoon trade Wednesday, to bounce off the previous session's 3 1/2-year closing low, after The Wall Street Journal reported that the cigarette seller was near a deal to take a 35% stake in e-cigarette startup Juul Labs Inc.

Under the agreement, Altria's only entry into the e-cigarette market will be through Juul for at least six years.

With the new investment, Juul is now valued at $38 billion, according to Altria's announcement.

Juul did not immediately respond to Business Insider's request to explain exactly how the payouts will work.

Partnering with Big Tobacco may not seem like the best way to do that, optically speaking.

"But over the course of the last several months we were convinced by actions, not words, that in fact this partnership could help accelerate our success switching adult smokers", Juul said. Executives said they have no knowledge of how the U.S. Food and Drug Administration, which has expressed concerns about youth smokers and flavors, views the deal. In a statement, Juul Labs CEO Kevin Burns described the deal as "seemingly counterintuitive", before arguing that the massive, all-cash deal will actually help in the company's mission. "But intent is not enough, the numbers are what matters, and the numbers tell us underage use of e-cigarette products is a problem". The F.D.A. has said it intends to create new regulations requiring traditional cigarette makers to reduce the amount of nicotine in their products. These products also use nicotine salts, which allow particularly high levels of nicotine to be inhaled more easily and with less irritation than the free-base nicotine that has traditionally been used in tobacco products, including e-cigarettes. Altria also has a deal to market Philip Morris's "heat not burn" device IQOS, already sold internationally, if it wins USA regulatory approval.

"Altria has no interest in reducing the number of people who smoke cigarettes".

Last month, in another diversification away from its traditional products, Altria made a $1.8bn investment in a Canadian cannabis producer, Cronos.

The tobacco giant, which had revenues of $25.6 billion in 2017, plans $500 to $600 million in annual cost savings through job cuts and other measures.

Sources familiar with the situation have said that the employees stand to receive the $2 billion dividend from Altria as part of its deal that it announced recently.


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