Marlboro maker Altria Group Inc said that it would buy vaping pioneer NJOY Holdings Inc for at least $2.75 billion, after closing the chapter on its ill-fated investment in e-cigarette maker Juul Labs Inc.
The deal will give Altria full global ownership of NJOY’s e-vapor product portfolio, including NJOY ACE, the only pod-based e-vapor product with market authorizations from the US Food and Drug Administration (FDA).
The Altria-NJOY deal includes an additional $500 million in cash payments if the FDA authorizes additional NJOY products. Those include the menthol-flavored refill pods it currently sells and a new version of its device that uses a Bluetooth connection to authenticate the user before unlocking, according to the Wall Street Journal.
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Hit with a mountain of lawsuits alleging that it had targeted minors, Juul came close to filing for bankruptcy in November last year.
Altria acquired a stake in Juul that was valued at $12.8 billion in 2018, but the deal soured in the face of never-ending lawsuits and sharp regulatory scrutiny. The stake for which Altria had paid $12.8 billion is now worth only $250 million, Altria said.
The Richmond, Virginia-based tobacco giant has now traded its equity for nonexclusive rights to some of Juul’s intellectual property related to heated tobacco devices.
Learning from the past
Altria CEO Billy Gifford said on a call with analysts that his decision to acquire NJOY was informed by “lessons” the tobacco giant learned from its failed Juul investment.
“One is certainty. This is an authorized product versus a pending product. There are no litigation challenges. The youth usage is minimal,” said Gifford. “The other is about control. This is about 100% ownership versus a minority investment.”
NJOY has managed to get FDA approval to sell its tobacco-flavored e-cigarettes in the US, unlike the two biggest brands: Juul and Vuse Alto, which is owned by Reynolds American Inc.
The majority of vapes on the market haven’t received a marketing granted order (MGO) from the FDA. But as long as they have a pre-market tobacco product application (PMTA) pending, the FDA allows them to remain on the market subject to its enforcement discretion.
In 2022, the e-vapor category included 14 million US adult tobacco consumers, including 9.5 million exclusive adult vapers. It generated $7 billion in US retail sales.
NJOY is the No. 3 e-cigarette brand in US stores, according to Nielsen but has a “very small market share, representing about 3% of the market.” Juul accounts for about 26%.
Altria expects the NJOY deal to boost cash flows within two years and add to its adjusted per-share earnings within three years of closing. Altria left its 2023 profit targets unchanged.
“We are excited to add NJOY’s e-vapor IP as a new platform that we believe we can build on to help more adult smokers transition to smoke-free alternatives,” Olivier Houpert, Altria’s new Chief Innovation and Product Officer, said in a statement.
Contact the author Uttara Choudhury at uttara@proactiveinvestors.com
Follow her on Twitter: @UttaraProactive