On Thursday, Altria Group Inc., the owner of Marlboro cigarettes, announced that they are paying $12.8 billion US to purchase a 35 percent stake in vaping company Juul Labs Inc. They are looking to create a marriage between an old-fashion tobacco juggernaut and the rapidly-growing alternative to smoking.
The entire deal has valued the San Francisco-based Juul Labs Inc. at $38 billion US, which is more than double the $16 billion US valuation it received in last July’s private funding round. Altria’s primary interest in the company is encouraged by the declining rate of smoking and cigarette sales in the United States.
Howard Willard, CEO of Altria Group, stated that they are taking significant action to prepare for a future where smokers choose non-combustible smoking alternatives over cigarettes.
Juul Labs has quickly become the market leader of e-cigarettes in the United States over the last three years, and the Altria investment is expected to give Juul even more distribution through more traditional retail channels and convenience stores. Both companies believe that Juul can reach Altria’s long-time consumers via advertisements on traditional cigarette packaging and direct mail.
Kevin Burns, another chief executive of Juul Labs, made a statement that said their success depends on the ability to move their product into the hands of adult smokers and out of the hands of teenagers. Burns believes that Altria Group’s investment and agreement is going to help them reach that goal.
Terms of the agreement state that Altria Group is unable to purchase any additional shares in Juul Labs that are above the current interest. Altria Group has also agreed that they won’t sell or move any Juul Labs shares for a minimum of six years after the deal gets closed. The arrangement, which is currently subject to anti-trust clearance, permits Altria Group to nominate directors they feel are suitable to represent the third of Juul’s board that they control.