Another Financial Deal

Altria Is Nearing a Deal to Take a 35% Stake in Juul

Investment would give the maker of Marlboro cigarettes greater access to a rapidly growing segment of the nicotine market

E-cigarette startup Juul has grown quickly in its short existence. PHOTO: EVA HAMBACH/AGENCE FRANCE-PRESSE/GETTY IMAGES

By Dana Mattioli, Jennifer Maloney and Dana Cimilluca

Altria Group Inc. MO 1.00% is nearing a deal to take a 35% stake in e-cigarette startup Juul Labs Inc. at a roughly $38 billion valuation, according to people familiar with the matter, an investment that would make Juul one of the most valuable private companies.



Altria Is Nearing a Deal to Take a 35% Stake in Juul

The $12.8 billion cash injection could be announced as soon as this week, the people said. It would more than double what Juul was valued at just a few months ago, a sign of how quickly the startup has been growing and Altria’s desire to find growth outside its shrinking cigarette business. The Wall Street Journal earlier reported on the discussions.

At $38 billion, three-year-old Juul would be worth more than several well-known Silicon Valley startups, including Airbnb, the home-sharing service; Elon Musk’s space venture SpaceX; and three times as much as Pinterest. Juul’s valuation would be on par with the market capitalization of public companies such as Delta Air Lines Inc., DAL -1.93% Target Corp. TGT -3.80% and Ford Motor Co.

The rich valuation comes at a time that the San Francisco company is under fire from regulators, educators and public health officials over its popularity among children and teens. Juul says its products are designed to help adult cigarette smokers switch to a less-harmful way to inhale nicotine, but the company’s own research shows its sleek device has hooked many people who had never smoked or had quit smoking.

Juul, which has about 1,500 employees, was on track for $2 billion in annual revenue. It has outperformed its internal forecasts from its last funding round, according to a person familiar with the matter. The company has profit margins as high as 75%, the person added, which is much higher than traditional tobacco.

The investment would give the Marlboro maker greater access to a rapidly growing but increasingly controversial segment of the nicotine market. It would also expand Altria’s reach beyond the U.S. Currently, Philip Morris International Inc. sells Marlboro and other Altria brands outside the U.S. Juul products are sold in Canada, the U.K., Israel and Russia, and the company has expansion plans in Europe and Asia.

Some Juul employees have been upset by their company’s talks with Altria, saying it is a betrayal of the startup’s mission to help cigarette smokers switch to less-harmful products. In an all-hands meeting after the Journal first reported the discussions, Juul Chief Executive Kevin Burns told staff that any deal would have to meet criteria including Juul maintaining full control of the company, employees having the option to cash out shares and the new investor taking actions to support Juul’s mission, according to a person familiar with the matter.

A deal with Altria would give Juul access to better shelf space at retailers and marketing access to millions of cigarette smokers.

Youth use of e-cigarettes has soared over the past year, thanks largely to Juul’s thumb-drive shaped vaporizers, whose sales have skyrocketed since mid-2017. One out of every five high-school students—more than three million teens—reported using e-cigarettes recently, according to a federal survey conducted this past spring.

Altria’s stock had declined nearly 30% over the past year as the company grappled with declines in traditional smokers and a potential U.S. ban on menthol cigarettes.The Richmond, Va.-based company is now pivoting to areas of growth in the market. Earlier this month, Altria made a $1.8 billion investment in Canadian cannabis company Cronos Group Inc. That deal will give Altria access to a growing part of the industry as marijuana becomes legalized in more markets.

Altria’s pursuit of Juul signals a lack of confidence in a heat-not-burn device called IQOS that it hopes to market in the U.S. in a partnership with Philip Morris International. The product, which heats tobacco but doesn’t burn it, has gained traction in Japan and other countries, but its prospects in the U.S. are unclear.

In January, an advisory committee to the Food and Drug Administration said scientific evidence was insufficient to support an ambitious marketing claim proposed by Philip Morris that switching to IQOS from cigarettes reduces the risks of tobacco-related disease.

A Philip Morris spokesman said six million cigarette smokers around the world have switched to IQOS. “No other innovation has yet approached the tremendous reduction in cigarette use that IQOS has achieved in such a short period of time,” he said.

Juul, like many other e-cigarette devices, is sold without formal FDA approval and has been able to advertise on social media unlike traditional cigarette brands. The FDA has given e-cigarettes already on the market several years before they must apply for approval.

To combat underage use, the FDA recently imposed restrictions on the sale of certain flavors of e-cigarettes that it says appeal to teens. Juul refills with non-tobacco flavors such as mango and cucumber account for a sizable chunk of its sales, according to analysts.

Juul has taken steps to restrict sales to minors, including pulling all but its mint, menthol and tobacco-flavored products from bricks-and-mortar stores. It continues to sell all its flavors on its website, which it says has age verification technology. The company has discontinued its use of U.S. social media.

Altria recently discontinued its own e-cigarette products, sold under the MarkTen and Green Smoke brands, which had failed to gain much traction in the marketplace.