FTC Orders Altria to Sell Its Juul Labs Stake

Bill Alpert Sin Stocks CRON.T MO Federal Trade Commission Juul Labs Altria Altria Group Cronos Group U.S. Food and Drug Administration Computers/Consumer Electronics Personal Electronics Tobacco Products Cigarettes Consumer Goods Consumer Electronics Electronic Cigarettes Handheld Electronic Devices Technology Rohit Chopra Rebecca Slaughter Howard Willard William Gifford Murray Garnick Azer Cowen CRON Ian Conner Kevin Crosthwaite Vivian Azer North America United States Corporate Crime/Legal Action Financial Performance Earnings Sales Figures Ownership Changes Acquisitions/Mergers/Shareholdings Anti-Competition Issues Acquisitions/Mergers Corporate Actions Corporate/Industrial News Content Types Factiva Filters C&E Executive News Filter C&E Industry News Filter G/FTC I/CPR I/TOB JULI.XX M/NCY M/TEC MO N/CAC N/CNW N/DJN N/ERN N/LWS N/PFM N/SLS N/TNM N/TST N/WER R/NME R/US Barrons.com Barrons Blogs Wires CODES_REVIEWED Companies Consumer Investing Marijuana Sin Stocks author Bill Alpert 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N/WER status modified inactivebydefault true first_publish_headline Altria Group Must ‘Unwind’ Its Troubled Juul Labs Stake, FTC Says first_publish_headline|Altria Group Must ‘Unwind’ Its Troubled Juul Labs Stake, FTC Says flow NWREGULAR flow|NWREGULAR codetype FLOW name Wires source MANUAL value NWREGULAR code NWREGULAR status modified flow Barrons.com flow|Barrons.com codetype FLOW name Barrons.com source MANUAL value Barrons.com code online status modified name Online title Product code Barrons.com flow Barrons Blogs flow|Barrons Blogs codetype FLOW source MANUAL title Product code Barrons_Blogs name Barrons Blogs value Barrons Blogs status modified headline Altria Group Must ‘Unwind’ Its Troubled Juul Labs Stake, FTC Says headline|Altria Group Must ‘Unwind’ Its Troubled Juul Labs Stake, FTC Says in i429 in|i429 codetype in why about source FACTIVA code i429 name Tobacco Products significance prominent fcode i429 onlinesignificance prominent in ievd in|ievd codetype in why about 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code usa name United States significance prominent fcode usa onlinesignificance prominent re namz re|namz codetype re why lineage source FACTIVA subcat snr code namz name North America fcode namz relay SYND relay|SYND codetype RELAY name Syndication source EXPANDER value SYND code synd status modified statistic CODES_REVIEWED statistic|CODES_REVIEWED name CODES_REVIEWED value CODES_REVIEWED codetype STATISTIC code CODES_REVIEWED subject BARCOMP subject|BARCOMP ruleid BARCOMP codetype SUBJECT value BARCOMP canbedisplaysubject true name Companies title Companies status modified code BARCOMP subject BARINVST subject|BARINVST ruleid BARINVST codetype SUBJECT value BARINVST canbedisplaysubject true name Investing title Investing status modified code BARINVST subject BARSINSTOCK subject|BARSINSTOCK ruleid BARSINSTOCK codetype SUBJECT value BARSINSTOCK canbedisplaysubject true name Sin Stocks title Sin Stocks status modified code BARSINSTOCK subject BARMARJN subject|BARMARJN ruleid BARMARJN codetype SUBJECT value BARMARJN canbedisplaysubject true name Marijuana title Marijuana status modified code BARMARJN subject BARCONSUMER subject|BARCONSUMER ruleid BARCONSUMER codetype SUBJECT value BARCONSUMER canbedisplaysubject true name Consumer title Consumer status modified code BARCONSUMER wordcount 915 wordcount|915 id facebook id|facebook news_tab_url https://www.barrons.com/articles/altria-group-must-unwind-its-troubled-juul-labs-stake-ftc-says-51585848654 Photograph by Gabby Jones/Bloomberg Altria Group Must ‘Unwind’ Its Troubled Juul Labs Stake, FTC Says Altria Group Must ‘Unwind’ Its Troubled Juul Labs Stake, FTC Says Altria Group Must ‘Unwind’ Its Troubled Juul Labs Stake, FTC Says

Before the FTC’s move, the tobacco giant had already written down its Juul investment by two-thirds because of disappointing e-vaping sales volumes and profits and private lawsuits.

FTC Orders Altria to Sell Its Juul Labs Stake

Before the FTC’s move, the tobacco giant had already written down its Juul investment by two-thirds because of disappointing e-vaping sales volumes and profits and private lawsuits.

https://www.barrons.com/articles/as-juul-vaporizes-altrias-stock-takes-a-major-hit-51582935991 https://www.barrons.com/articles/cronos-stock-got-slammed-in-recent-months-its-time-to-buy-analyst-says-51583338397 https://www.ftc.gov/news-events/press-releases/2020/04/ftc-sues-unwind-altrias-128-billion-investment-competitor-juul https://www.barrons.com/articles/tobacco-stocks-pop-on-possible-shift-in-fda-nicotine-policy-51574288219 https://www.ftc.gov/system/files/documents/public_statements/1570265/statement_of_comm_chopra_in_the_matter_of_altria-juul.pdf https://www.barrons.com/articles/altria-stock-drops-after-earnings-juul-remains-a-problem-51580392380 https://www.barrons.com/articles/is-altrias-7-dividend-yield-sustainable-these-rbc-analysts-say-yes-51580745958 mailto:william.alpert@barrons.com Altria Group Must ‘Unwind’ Its Troubled Juul Labs Stake, FTC Says By Bill Alpert Photograph by Gabby Jones/Bloomberg

The diversification efforts by America’s biggest tobacco company are looking more like a debacle.

On Wednesday, the Federal Trade Commission sued Marlboro maker Altria Group (ticker: MO) to demand the unwinding of its $12.8 billion investment in the e-cigarette seller Juul Labs. Before the FTC’s move, the tobacco giant had already written down its Juul investment by two-thirds because of disappointing e-vaping sales volumes and profits and private lawsuits.

Sales have been weak, too, at Canadian cannabis producer Cronos Group (CRON). Altria paid $1.9 billion last year for a 45% stake in the company.

Altria stock was down 5.3% Thursday morning, at $35.63, after the FTC announced its administrative complaint alleging that the company violated antitrust laws in distribution and marketing deals it made with Juul when Altria bought a 35% stake in the e-cigarette vendor. Shares of Altria have lost more than half their value in the past three years as sales volume has slowed for its highly profitable smoking products.

The antitrust suit doesn’t concern itself with the problems of e-cigarette safety or youth vaping—issues being addressed by the U.S. Food and Drug Administration. Instead, the FTC complains that Altria stopped selling its own MarkTen e-cigarette products when it decided to buy into Juul.

“For several years, Altria and JUUL were competitors,” said the head of the agency’s bureau of competition, Ian Conner, in Wednesday’s announcement. “By the end of 2018, Altria orchestrated its exit from the e-cigarette market and became JUUL’s largest investor.”

Altria’s purchase valued Juul at $38 billion. “I believe a key reason for this rich valuation was a key provision in the agreement where Altria would be able to share in monopoly profits through a non-compete agreement,” wrote FTC Commissioner Rohit Chopra—joined by Commissioner Rebecca Slaughter—in a Thursday morning statement. The two argued that the FTC should not allow Altria to participate as an observer at Juul board meetings.

In its own statement, Altria said it would vigorously defend its Juul investment. “We believe that our investment in JUUL does not harm competition and that the FTC misunderstood the facts,” said the tobacco company’s general counsel Murray Garnick in a statement. When queried by Barron’s, Altria pointed to the statement and didn’t immediately respond to requests to elaborate.

For its $12.8 billion investment, Altria got a 35% share of Juul’s economic results, but its shares remained nonvoting as the companies waited for antitrust approval. With Wednesday’s FTC action, Altria will have to continue waiting to convert its stake into voting shares and taking seats on Juul’s board. Altria’s former chief of strategy, Kevin Crosthwaite, moved over to become Juul’s chief executive in September 2019. Juul’s founders awarded themselves a $2 billion dividend after Altria’s investment.

The FTC hasn’t released copies of its administrative complaint, but Wednesday’s announcement mentioned Altria’s agreements to give Juul products some of the retail shelf space commanded by Altria’s market-leading Marlboro cigarette brand, which had formerly been occupied by Atria’s abandoned e-cigarette products. Juul products are the bestselling e-cigarettes.

An administrative trial is set to begin in January 2021 and could take years if appealed. Beyond saying that Altria should “unwind” the Juul deal, the FTC announcement contained no specifics on the remedies it will seek. If Altria were forced to sell its Juul stake, it would get far less than its $12.8 billion expenditure—as indicated by the tobacco firm’s $8.6 billion in impairment charges last year.

Although unit sales of Altria’s cigarettes decreased 7% last year in the U.S., the tobacco business remains fabulously profitable. The company’s Marlboro brand maintained its dominant 43% share of the market. After excluding nonoperating charges, Altria reported per-share earnings of $4.22 in 2019, compared with $3.99 in 2018. Its dividend yield exceeds 7%.

Still, the Juul deal hung like a cloud over Altria’s 2019 results. In the proxy statement filed by the tobacco company on Thursday, Altra said that the performance of its Juul investment had a negative impact on shareholder value, its 2019 income, and investor sentiment. The company therefore declined to give CEO Howard Willard a salary increase and a portion of his incentive awards. On March 19, the CEO took a temporary medical leave after contracting Covid-19 and was replaced by Chief Financial Officer William Gifford.

Alria’s stock sells for just 8.5 times the $4.41 a share in earnings that is forecast by analysts polled by FactSet. Most of them rate the shares a Buy. Cowen’s Vivian Azer isn’t among them.

Azer, who rates Altria shares Market Perform, said in a Thursday morning note that any result of the FTC action is unlikely to be financially meaningful. “[W]e don’t think the market is ascribing much, if any, value to the JUUL stake at this point,” she said, “and do not view the complaint as a material impact to the stock.”

Write to Bill Alpert at william.alpert@barrons.com

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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