Juul Valued At $38 billion In Deal with Altria

Tobacco group’s 35% stake in e-cigarette maker will more than double its worth.

Marlboro cigarette maker Altria Group is set to take a 35% stake in Juul Labs in a deal that would value the e-cigarette group at about $38 billion and catapult it into the ranks of the world’s most valuable private companies, according to a Financial Times report.

Altria’s investment of about $13 billion, which could be announced as early as Thursday morning, will more than double the $16 billion valuation put on Juul in a fundraising this summer, a sign of how much big tobacco covets the fast-growing San Francisco company at a time when cigarette consumption is falling in developed markets, the Times said.

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The cigarette maker has been keen to have the option of gaining a controlling stake in time, people briefed about the matter said, but with Juul’s leadership hoping to retain control, Altria agreed to a standstill agreement capping its stake at 35% for a sustained period. When that standstill expires, any increase will be subject to agreement.

FINANCIAL BACKING
Altria’s shares rose 1% to $51.40 after the Wall Street Journal first reported details of the deal. They have fallen from above $65 since the start of November. The largest investors in Altria, which include Capital Group and Fidelity, were backing the transaction, said a banker close to one of Altria’s major shareholders, according to the Times.

The deal was expected to include support from Altria in terms of securing shelf space at retail and advertising Juul’s products as alternatives for existing smokers looking to switch, one person briefed on the terms said. Altria this month announced it would discontinue its own vapor products, MarkTen and GreenSmoke.

Altria is paying up for its Juul investment even though the e-cigarette market has been threatened by Scott Gottlieb, head of the U.S. Food and Drug Administration. Gottlieb is preparing to crack down on what he has called “epidemic” levels of underage vaping. A federally funded study by the University of Maryland reported this week that the number of high school students using e-cigarettes doubled this year. One in five high school seniors told the researchers they had vaped nicotine in the previous month.

The regulator’s plans would severely restrict the availability of flavored e-cigarettes to locations off limits to anyone under 21, upending Juul’s business model. Juul has pulled sweet flavors of its liquids from more than 90,000 retailers to comply, among a series of actions that analysts estimate could affect about half of its sales, the Times report said.