E-cigarette maker Juul Labs is in early talks with tobacco giants Philip Morris International (NYSE:PM), Japan Tobacco (JAPAF), and Altria Group (NYSE:MO) to evaluate strategic options, including a potential sale, investment, or partnership, the Wall Street Journal reported.
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Juul, which was on the verge of filing for bankruptcy last year, had separate discussions with the three tobacco giants about potential deals. However, sources told the WSJ that a deal is not imminent and talks might fail. As per Nielsen estimates, Juul accounts for 27% of e-cigarettes sold in U.S. stores, which makes it an attractive acquisition target.
Juul’s Multiple Challenges
However, Juul has been facing many regulatory and legal challenges over allegations that it deceptively marketed e-cigarettes to children and teens, leading to increased tobacco use by the younger generation. In December 2022, the company settled over 5,000 lawsuits brought by about 10,000 plaintiffs, agreeing to pay $1.7 billion in settlement. The company secured an equity investment to fund this payment.
In June 2022, the U.S. Food and Drug Administration (FDA) rejected Juul’s application to retain its products on the market as a smoking alternative for adults, citing insufficient and conflicting data. However, a federal appeals court granted a temporary stay of the FDA’s order, allowing Juul to continue to sell its products during the appeal process. The matter is still unresolved and has created lot of uncertainty about the company’s future prospects. If the FDA decides to permanently halt Juul’s sales, the company could seek the regulatory body’s approval for its newer products that are selling in international markets.
Amid increased scrutiny from watchdogs, tobacco behemoth Altria, which purchased a 35% stake in Juul for nearly $13 billion in 2018, wrote down the value of its investment to $450 million in Q2 2022. In September 2022, Altria decided to end its non-compete agreement with Juul, allowing the tobacco company to develop its own vaping products or acquire another vaping company. It also gave Juul the option to seek other buyers. Reportedly, the two companies have now resumed discussions to explore strategic options.
Is Altria a Buy, Sell, or Hold?
Altria, which sells the Marlboro brand in the U.S., is under pressure due to the growing aversion for cigarettes. Wall Street’s Hold consensus rating for Altria is based on three Buys, three Holds, and two Sells. The average MO stock price target of $46.25 implies nearly 3% upside potential. Shares have declined 10% over the past year.
