On Wednesday, November 28, it was reported that tobacco giant Altria
The popularity of electric tobacco products has surged over the past year. However, cigarette sales have declined as older smokers are dying and fewer young people are starting to smoke. Cigarette smoking in the US fell to its lowest point in recorded history last year. Altria sells its own e-cigarettes, including MarkTen and Green Smoke, but they comprise a fraction of its $25.6 billion in revenue. Juul commands 75% of the e-cigarette market, due to growing popularity of vaping among teenagers and young adults.
Founded in San Francisco in 2015, Juul was valued at $16 billion in a private fundraising round this summer, thanks to its first-mover advantage and name recognition. Wells Fargo
Others are more skeptical of a future deal. As parents, teachers, and regulators are demanding Juul address what the Food and Drug Administration (FDA) has called an epidemic of teen e-cigarette use, Juul is scrambling to comply. In response to regulatory pressure, in November Juul said it will halt selling most of its flavored nicotine pods for e-cigarettes in retail stores. In addition, Juul selling a stake to Altria would mean breaking its promise to be independent from Big Tobacco. It could be a problem of corporate identity. Finally, some Juul employees are upset at the prospect of a deal, believing the two firms' missions are polarized.
Regardless of the factors surrounding a successful acquisition deal, the two companies will likely be in talks for a while. The regulatory scrutiny will probably not decrease and only heighten as e-cigarettes become more of a public health issue. Altria investors should keep the risks in mind as they ponder what to do with its value stock.
The author owns a small long position in MO.
- 1. https://www.cnbc.com/2018/11/28/altria-is-reportedly-in-talks-to-take-a-minority-stake-in-juul.html
- 2. https://www.marketwatch.com/story/altria-may-be-adding-a-juul-to-its-crown-if-talks-with-e-cigarette-company-end-in-deal-2018-11-29
- 3. https://www.cnbc.com/2018/11/30/juul-e-cigarette-maker-weighs-investment-frommarlboro-maker-altria.html
- 4. https://www.fastcompany.com/90275110/report-some-juul-employees-dont-want-to-ride-with-the-marlboro-man