Altria Group Inc. (Altria), the US-based world’s leading tobacco and cigarette manufacturing company, announced to revise its existing deal with Juul Labs Inc. (Juul).
As a part of reworking the investment deal, Altria has moved another $4 billion charge on its investment in Juul, an American e-cigarette maker. The e-cigarette producer has been recently facing hardships as several legal cases are pending against the company besides a slowdown of its business.
Hampering the Investment Deal
Altria, which is known for producing cigarette brand Marlboro, claimed on Thursday, January 30, 2020, that the company’s slapping of the fourth-quarter (Q4) charge was mainly due to the rise of regulatory scrutiny and increasing legal cases against Juul. With making the Juul deal in 2018, Altria had started its venture in the market for vaping despite having a situation of declining smoking rates and cigarette sales in the US.
Altria officials said the company invested $12.8 billion to purchase a 35% stake in Juul in December of 2018, valuing Juul at $38 billion. With the slowing down of e-cigarette consumers in the US, the official stated that Juul is now valued at about $12 billion. Following the share buyout, Altria had made $8.6 billion in impairment charges and the charges had again brought down the value of its investment to $4.2 billion as of the end of 2019.
Over the years, the prospect of the deal hampered due to the rise of the issues concerning vaping-related deaths in the US which subsequently led to increasing bans of teenage vaping. On several reports against Juul, the US Food and Drug Administration (FDA) setting May 2019 as deadline urged the e-cigarette manufacturing company to submit applications explaining the issues and asking to prove their products’ net benefits to public health. Altria reported that it would help Juul in resolving the issue of regulatory scrutiny and FDA approval problems.
Focusing to Get Over the FDA Approval Issues
Juul’s new CEO and former Altria executive, K.C. Crosthwaite has made a statement saying that the FDA application process would be his central goal and work for restructuring the company to get regulatory approval. Responding to a question, Altria’s CEO, Howard Willard said, “Right now, our primary focus is on helping Juul file a compelling and complete PMTA (premarket tobacco product application).”
Willard added his optimistic view regarding the FDA approval as he claimed that the company had witnessed from a federal youth tobacco survey a major decline of e-vapor products consumption among American youths.
Earlier, Willard said citing the decline of the Juul’s valuation, “I’m highly disappointed in the financial performance of the Juul investment… The valuation is substantially below what we had expected.” Willard also added that Altria had no expectation to be receiving Juul’s earnings over the next three years.
As Reuters reported, Altria would now stop providing logistics services to Juul and conduct a rearrangement of the existing board members of Juul to include two directors assigned by Altria. The report continued, “Shares of Altria fell 6% in after the charges pushed the company to post a fourth-quarter loss of $1.81 billion, compared with a profit of $1.25 billion a year earlier.”
I’m Roshan, a journalist, blogger and music lover. I like covering global news related to finance, business, and technology. Focusing on the collection of true and reliable information, I rely on working by conducting interviews with business leaders and talking to the inside sources of companies.
You can reach out to me at: [email protected]