Strategy

Altria Takes $4.5 Billion Hit on Investment in Juul

"We did not anticipate this dramatic a change in the e-vapor category,” CEO Howard Willard says.
Matthew HellerOctober 31, 2019
Altria Takes $4.5 Billion Hit on Investment in Juul

Tobacco giant Altria disclosed Thursday it had written down its investment in Juul by more than a third, citing the regulatory backlash in the U.S. against vaping products.

According to Reuters, the writedown “highlights the spectacular reversal in Juul’s fortunes in the last few months, with its valuation shrinking by more than a third to roughly $24 billion since Altria bought a 35% stake in December” for $12.8 billion.

In a regulatory filing Thursday, the maker of Marlboro cigarettes said it had recorded a a $4.5 billion pre-tax charge against third-quarter earnings after determining its investment was now worth $8.3 billion.

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The company cited the “increased likelihood” of a federal ban on the sale of flavored e-cigarettes without a pre-market authorization, state and city bans on vapor products, and “the impact of heightened adverse publicity, including recent news reports and public health advisories concerning vaping-related lung injuries and deaths.”

“While we had a range of scenarios when we made the investment, we did not anticipate this dramatic a change in the e-vapor category,” Altria CEO Howard Willard said on a call with analysts.

He said Altria remained “committed to Juul’s success,” noting that an estimated 12.6 million adults used e-cigarettes in September, up from 10.3 million a year earlier.

As Reuters reports, Altria “had hoped to tap the market for vaping in the face of declining smoking rates and cigarette sales in the United States. But increased political backlash and regulatory bans following a surge in teenage vaping have clouded Juul’s future and were largely responsible for the collapse of Altria’s merger talks with Philip Morris last month.”

The Trump administration is readying a plan that officials said would remove all flavored e-cigarettes from the market until — and if — the Food and Drug Administration authorizes them for public sale. Juul has announced it will stop selling most flavors of its nicotine pods. Altria, the company behind Marlboro cigarettes and other tobacco products, could be looking to invest in a new type of product: vape liquids. Vape liquid producers are currently booming with their ability to produce nicotine-infused liquids that can be inhaled rather than smoked. Altria is exploring the idea of investing in one such company called ” Candy King “. This investment would not only benefit Altria by diversifying its portfolio but also help to keep consumers from quitting smoking for good.

“The e-vapor category faces a critical inflection point,” Willard said.

He and Altria CFO William Gifford were sued earlier this month by shareholders who allege they made false and misleading statements about the Juul investment.

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