Altria's Nu Mark to Acquire Green Smoke E-Vapor Business

RICHMOND, Va. -- Altria Group Inc.'s subsidiary Nu Mark LLC inked a deal to acquire the e-vapor business of Green Smoke Inc. and its affiliates for approximately $110 million in cash.

The agreement, which includes up to $20 million in incentive payments, comes six months after Nu Mark entered the electronic cigarette market with its MarkTen brand. The MarkTen e-cigarette launched in August in Indiana and has since expanded to Arizona.

"Nu Mark's entry into the e-vapor category with its MarkTen product was an important development in Altria's innovation strategy. Adding Green Smoke's significant e-vapor expertise and experience, along with its supply chain, product lines and customer service, will complement Nu Mark's capabilities and enhance its competitive position," said Marty Barrington, Altria's chairman and CEO. "Further, Green Smoke's culture of innovation and history of producing high-quality products are consistent with Altria's culture."

Miami-based Green Smoke was founded in 2008 and has operations in the United States and Israel. The company has sold e-vapor products since 2009 and its revenues for 2013 were approximately $40 million. Its product lines, which are sold under the Green Smoke e-vapor brand, include rechargeable and disposable versions.

The deal, which contains provisions to retain key management infrastructure and talent, is expected to close in the second quarter.

"We are very pleased to be joining the Altria family of companies," said Robert Levitz, Green Smoke's CEO. "We are dedicated to innovation and believe joining Nu Mark will help us deepen that expertise and create new opportunities for our customers, our employees and our products."

Richmond-based Altria directly or indirectly owns 100 percent each of Philip Morris USA Inc., U.S. Smokeless Tobacco Co. LLC, John Middleton Co., Nu Mark, Ste. Michelle Wine Estates Ltd. and Philip Morris Capital Corp. Altria also holds a continuing economic and voting interest in SABMiller plc. The brand portfolios of Altria's tobacco operating companies include Marlboro, Black & Mild, Copenhagen, Skoal and MarkTen.

The majority of Green Smoke's U.S. sales are online, according to Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities LLC. However, the company does have a small presence in convenience stores. Nielsen numbers show Green Smoke's retail sales in c-stores for the 52 weeks ended Dec. 21, 2013 were $3.9 million, accounting for 0.8-percent share.

Green Smoke presents an opportunity for Altria to develop a portfolio of e-vapor brands, complementing its existing MarkTen product, and Green Smoke can reach a different consumer since it doesn't look like a traditional cigarette and is bigger than MarkTen with a stronger battery, Herzog said. In addition, Altria can leverage its sales distribution and infrastructure.

"Overall, we believe this acquisition is positive as we have long believed companies would develop portfolios of e-cig brands that cater to different consumers," she said.

Wells Fargo Securities reached out to industry contacts and although many of its c-store contacts aren't as familiar with Green Smoke given its small presence in the channel, the general tone was positive, Herzog stated.