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09/30/2022

Altria Takes a Step Away From Juul Labs

The company intends to end a noncompete agreement the two entered into in late 2018.
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RICHMOND, Va. — Altria Group Inc. intends to end its noncompete agreement with Juul Labs Inc.

The tobacco company disclosed its plans in a recent filing with the U.S. Securities Exchange Commission, according to Seeking Alpha.

The decision frees up Altria to make other moves within the vapor space, including acquiring another brand or developing its own new vaping products. For its part, Juul will be able to make a deal with another company, the financial news outlet reported.

Following the end of the agreement, Altria will lose its Juul board designation rights except the right to appoint one independent director as long as its ownership continues to be at least 10 percent.

The end to the noncompete agreement comes nearly four years after the two companies came together. In December 2018, Altria made a $12.8-billion investment in Juul. The investment represented a 35 percent economic interest in Juul — a stake Altria still holds today.

According to Seeking Alpha, as of June 30, the carrying value of Altria’s investment in Juul was $450 million.

"We believe the decision to terminate our noncompete maximizes our flexibility to compete in the e-vapor space while maintaining our economic interest in Juul," Altria said in a statement.

Analysts Take

According to Vivian Azer, director and senior research analyst at Cowen and Co., the decision “makes sense that Altria would need to create some optionality in the vapor category given their limited exposure to [reduced risk products].”

Going forward, Azer sees Altria taking the merger-and-acquisition (M&A) route vs. developing its own product. She pointed to the company’s “limited success in in developing products organically” and the time needed to develop a product and get it approved for market through the Food and Drug Administration’s (FDA) premarket tobacco product application (PMTA) as a reason Altria could choose the M&A path.

“We believe it would be most prudent to acquire a competing offering that already has a PMTA, leaving Altria to purchase NJOY or wait until another product is approved by the FDA,” Azer said.

Bonnie Herzog, managing director at Goldman Sachs, views Altria’s plans as a positive move and removes “a key overhang.”

In addition to M&A and development of its own vapor product, she noted two other options Altria, including the ability to:

  • Benefit from any potential upside from Juul given Altria will retain it 35 percent equity stake in the company, or
  • Acquire the remaining 65 percent of Juul it doesn’t currently own and “at a very attractive valuation given Altria’s substantial write-down of Juul assets which would give it fulL ownership of Juul’s patents/technology to develop its own vaping products.”

Richmond-based Altria’s wholly owned subsidiaries include manufacturers of both combustible and smoke-free products, including Philip Morris USA Inc., John Middleton Co., U.S. Smokeless Tobacco Co. LLC and Helix Innovations LLC.