Altria cuts Juul investment by US$4.1 bil

  • Altria cuts Juul investment by US$4.1 bil

Altria cuts Juul investment by US$4.1 bil

Yesterday, tobacco giant Altria said the value of its stake in Juul had plummeted by $4.1 billion.

It is the second big charge the Marlboro maker has taken on its controversial investment.

Efforts to capitalize on new technologies such as e-cigarettes is crucial for companies like Altria, which took a 35 per cent stake in Juul at the end of 2018. The new charge comes amid a rise in lawsuits over Juul's vaping devices, which allege it has addicted a new generation of youth and become a burden on school districts. Blamed for a surge in underage vaping, the startup has pulled most of its flavors from the USA market and scaled back its global expansion.

Under the December 2018 announcement, Altria was to provide Juul access to Altria's retail shelf space and assist with other logistics and distribution activities.

Altria says it and Juul agreed to adjust the terms of their agreement: Altria will help Juul handle regulatory matters such as pre-market tobacco product applications.

It will continue to help Juul with regulatory services including the submission of its products, which contain nicotine, for approval by the Food and Drug Administration.

Looking stay on US shelves, Juul needs to submit its products for FDA approval by May. The stake is now valued at $4.2 billion.

Excluding the impairment charge, Altria earned $1.02 per share, in line with Wall Street estimates. Altria said the number of cases pending against Juul has grown more than 80% since October 31, 2019. Altria also scrapped its own e-cigarette products shortly before it invested in Juul.

"This agreement is a continuation of the reset initiated by JUUL's leadership team", Altria chief executive officer Howard Willard said in a statement.

Under the new agreement, Juul will expand and diversify its board and add a litigation oversight committee.

Altria anticipates the cigarette industry volume to drop by an adjusted rate of 4% to 6% by the end of this year. Juul's board now has five members, all of them men.

Shares of Altria slumped 4.95 to US$47.66 in late-morning trading. Two directors designated by Altria will join the Juul board following completion of an antitrust probe. The stock has been under pressure in recent years amid declines in its core business, the crackdown on e-cigarettes and scrapped merger talks with sister company Philip Morris International Inc.