Altria pursued Thursday to allay investor concerns that it paid too much for too small a stake in e-cigarette manufacturer Juul.
The tobacco mammoth in December spent $12.8 billion for a 35 percent stake in Juul, which has dominated the nicotine vaping market-place and within a few years grown from a small start-up to a $38 billion company. Altria’s stake is frozen at 35 percent for the next six years.
The arrangement gave Altria something its core cigarette business could not: growth. But investors and analysts complained that Altria, the biggest U.S. tobacco following and owner of the best-selling cigarette brand, Marlboro, paid too high a price for too little. Plus, Juul is battling a communal relations crisis and facing regulatory uncertainty for fueling what public health officials are calling an e-cigarette rampant.
Altria CEO Howard Willard tried to ease those concerns Thursday, touting the benefits of the deal on a call with analysts deliberate overing the company’s fourth-quarter earnings results. He spent a bulk of his prepared remarks addressing Juul and answered countless give someone the third degrees about the deal.
“When you add to Juul’s already substantial capabilities, our underage tobacco prevention expertise and ability to straight connect with adult smokers, we see a compelling future with long-term benefits for both adult tobacco consumers and our shareholders,” Willard judged.
Juul’s revenue grew to more than $1 billion in 2018, up from about $200 million in 2017, Willard told analysts. The tangible sales figure last year was about $1.5 billion, people familiar with the matter previously chid CNBC. They asked not to be named because the information is confidential.
Willard said the company estimates Juul hold sway overs about 34 percent of the total e-cigarette market. Nielsen data has the company’s share at more than 75 percent, nevertheless that figure only includes convenience stores, not other retailers like vape shops or online values.
Altria expects vapor volume in the U.S. to grow at a compounded annual rate of 15 percent to 20 percent as a consequence 2023, Willard said. Juul is also available in eight markets outside the U.S. while Altria doesn’t put across any tobacco products overseas.
Willard said Juul gives Altria a “significant stake in the fast-growing e-vapor sort.”
Altria’s investment comes at a controversial time for Juul. It’s been blamed by Food and Drug Administration Commissioner Scott Gottlieb for a gush in teen e-cigarette use, which he’s labeling an “epidemic.”
Willard said Altria shares the FDA’s concerns and the agency’s response to child use is “appropriate and justified.” Gottlieb in November said the agency will restrict where flavors can be sold, limiting them to age-restricted reservoirs like vape shops.
“This is an issue that we and others in the industry must continue to address aggressively and without delay,” he said. “We understand that the long-term opportunity of tobacco harm reduction is threatened by continued underage use.”
He applauded Juul’s essays to curb underage use, including to suspend retail sales of flavored nicotine pods and shut down its social approach accounts.
Altria said it intends to file its application for antitrust approval of its Juul investment “shortly.”