Altria Deal for Stake In Juul Is Stuck In Antitrust Review -- WSJ
18 January 2020 - 7:02PM
Dow Jones News
By Jennifer Maloney and John D. McKinnon
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 18, 2020).
Altria Inc.'s investment in e-cigarette startup Juul Labs Inc.
remains in limbo more than a year after the deal was made, as
federal antitrust officials continue to probe the Marlboro maker's
control of shelf space in stores, according to people familiar with
the matter.
Altria, the largest U.S. tobacco company, paid $12.8 billion for
a 35% stake in the e-cigarette market leader in December 2018. Two
weeks before announcing the deal, Altria closed its e-cigarette
business. As part of the tie-up, Altria agreed to put Juul coupons
on cigarette packs, send Juul promotions to its mailing list of
cigarette smokers and give Juul the shelf space that Altria's
MarkTen e-cigarettes had occupied. Juul has since taken some of
that shelf space.
Juul has come under increasing regulatory and financial pressure
since the investment as it has been blamed for a surge in underage
vaping in the U.S. Juul voluntarily halted sales of its sweet and
fruity-flavored refill pods, which are popular among teenagers, and
has said it is working to repair its damaged relationship with
regulators.
As part of the Federal Trade Commission review, Altria and Juul
in October agreed not to complete some aspects of the deal until at
least early January, pending signoff from the agency, but that date
passed last week without an approval. The agency is still
conducting depositions, some of the people familiar with the matter
said.
Until the review is complete, Altria can't convert its nonvoting
shares to voting shares, appoint representatives to Juul's board or
count Juul's earnings toward its own earnings.
FTC staffers are looking at Altria's acquisition of additional
retail shelf space in convenience stores and other outlets for its
e-cigarette products even as it planned to wind down that business
and take a stake in Juul, according to one of the people familiar
with the matter.
Big tobacco companies traditionally haven't paid retailers for
shelf space for their cigarettes. But Reynolds American Inc., the
second-largest U.S. tobacco company, began paying retailers in 2013
to secure shelf space for its Vuse e-cigarettes. As the e-cigarette
market boomed with competitors vying for space, Altria followed,
spending about $100 million on the effort in 2018, people familiar
with the matter said. Altria offered retailers cash and display
fixtures in exchange for a commitment that its e-cigarettes would
occupy prime shelf space for at least two years.
In the antitrust review, the FTC also has sought information
from Altria on its role in the September resignation of Juul Chief
Executive Kevin Burns and the appointment of his successor, Altria
executive K.C. Crosthwaite, according to Altria.
The Juul investment has been problematic for the tobacco
company. In October, Altria took a $4.5 billion write-down on the
company and now holds its stake at a price that values the startup
at roughly $24 billion, down from its $38 billion valuation when
Altria made its investment in 2018.
The FTC could seek to force changes to the deal to resolve any
antitrust concerns, or it could try to block the transaction
outright. Most antitrust concerns are resolved through settlements
instead of litigation.
The FTC is conducting a separate investigation into whether Juul
used influencers and other marketing to appeal to minors. That
probe predates the antitrust review. Several attorneys general are
investigating Juul, and the e-cigarette maker is the subject of a
criminal probe being conducted jointly by federal prosecutors in
California and the Food and Drug Administration, according to
people familiar with the matter.
Write to Jennifer Maloney at jennifer.maloney@wsj.com and John
D. McKinnon at john.mckinnon@wsj.com
(END) Dow Jones Newswires
January 18, 2020 02:47 ET (07:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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