Two Deals Deepen Altria's Entry Into The Vape Business

Following a trade for a minority investment in Juul and intellectual property rights, Altria makes an effort to purchase NJOY, an e-cigarette startup.

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Altria Group Inc. announced on Monday that it will acquire NJOY Holdings Inc., an e-vapor startup, for $2.75 billion in cash, its second recent transaction in the smokeless-tobacco market.

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According to Altria MO, 0.91%, the deal also includes control over the entire NJOY e-vapor product line and $500 million in extra milestone payments.

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After declaring late last week that it had surrendered its minority economic interest in Juul Labs Inc. for a nonexclusive, irrevocable global license to some of Juul's heated-tobacco intellectual property, this is the second vaping deal that Altria has made public recently.

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With around 14 million people, 9.5 million of whom are exclusively adult vapers, and an estimated $7 billion in sales by 2022, vaping is now the most popular smoke-free consumption type in the United States, according to Altria.

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As a benefit to adult tobacco users, Altria CEO Billy Gifford claimed that the NJOY acquisition will give the business "strengths of our commercial resources" and increased competitiveness in the market.

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The United States has granted NJOY permission to market six of its goods. While its other products are still going through the approval process, the Food and Drug Administration.

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Altria anticipates that the transaction will increase cash flow within two years after closing and adjusted per-share earnings within three years.

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The business supported its forecast of $4.98 to $5.13 in EPS for 2023.

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The stock, which has dropped 13% over the past 12 months while the S&P 500 SPX, 0.76% has dropped 6.5%, was marginally lower in premarket activity.

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Given that the business continues to face "major regulatory and legal difficulties and uncertainties, many of which could endure for many years," Gifford said that its ownership of intellectual property rights for Juul "is the appropriate road ahead."

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The business stated last week that it is still looking into all possibilities for how to compete in the e-vapor market.

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The agreement with Juul comes after Altria invested $12.8 billion in the business in 2018. According to Jefferies analyst Owen Bennett, the value of the minority stake had been reduced to $250 million as of December.

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On Sunday, Bennett restated his buy recommendation for Altria and stated that the purchase could still be profitable for Altria in the future.

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"Juul's value is probably going to increase dramatically once more in the upcoming years. One, if it ensures that a NJOY purchase goes through, and second, if it supports a dominant market share in heated [items], [it] might actually result in being a long-term [win]," Bennett added.

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According to Juul Labs, Altria's ownership swap action included the termination of underlying contracts, which will free up the business.

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The conditions of such agreements are no longer preventing Juul from pursuing other strategic alliances and opportunities. "We are free to utilize a variety of opportunities to increase the value of our company."