Altria Group to acquire NJOY Holdings for $2.75B in cash

Altria Group announced that the company has entered into a definitive agreement to acquire NJOY Holdings for approximately $2.75B in cash payable at closing. The transaction terms include additional $500M in cash payments that are contingent upon regulatory outcomes with respect to certain NJOY products. Currently, the FDA has issued MGOs for 23 e-vapor products and devices. In 2022, NJOY received MGOs for six products. Under the terms of the transaction, we the company will pay NJOY approximately $2.75B in cash upon closing. The transaction terms also include additional contingent cash payments up to $500M as follows: NJOY will receive $250M if the FDA issues an MGO for the NJOY ACE POD, menthol flavor, 5.0% nicotine concentration product either alone or in combination with the NJOY ACE POD, menthol flavor, 2.4% nicotine concentration product. If the FDA issues an MGO for the NJOY ACE POD, menthol flavor, 2.4% nicotine concentration product but not the NJOY ACE POD, menthol flavor, 5% nicotine concentration product, NJOY will receive a payment of $125M. NJOY is currently preparing PMTA filings for two non-tobacco or menthol flavored ACE pods that would be paired with NJOY’s access-restriction technology. If the FDA issues an MGO for either of these applications, NJOY will receive a payment of $125M. The company expects the transaction will be accretive to cash flow within two years of closing and accretive to adjusted diluted earnings per share within three years of closing. The company is also estimating the return on invested capital for the transaction to exceed our current weighted-average cost of capital within three to four years of closing. The company has multiple sources of funding available for the transaction. The company expects its core tobacco businesses continue to be highly cash generative, and we have strong access to the credit markets and committed short-term bank financing. Additionally, the company entered into a $2.7B transition agreement last year with Philip Morris International for the IQOS Tobacco Heating System. The company received a $1B payment from PMI in the fourth quarter of 2022 and expect to receive a payment of $1.7B from PMI by July 15. The transaction is subject to customary closing conditions, including reporting requirements under the Hart-Scott-Rodino Act. The company said, "We continue to believe that the U.S. e-vapor category will undergo a multi-year transition period as the FDA makes marketing determinations on the significant number of currently pending PMTAs for tobacco-derived and synthetic nicotine e-vapor products. We assume that over the next few years, the FDA will issue marketing determinations on all currently pending PMTAs. We also assume that the FDA exercises appropriate enforcement actions against non-compliant manufacturers, including those that continue to sell products that received marketing denial orders and those who failed to file PMTAs. We estimate that over the next 10 years, total U.S. e-vapor volumes will grow at a low single-digit compounded annual growth rate. We believe the strengths of our commercial resources can benefit adult smokers and adult vapers and expand competition in the stores where ACE has not been distributed while improving visibility in the stores that currently sell ACE. Our sales force has significant retail coverage, servicing over 200,000 U.S. retail stores, and decades of experience supporting the responsible retailing of tobacco products. We believe adding NJOY’s FDA-authorized products into this system will benefit ATCs across the country."