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April 6, 2020

Federal Regulators Sue to Stop Altria's $13B Investment in JUUL

The Federal Trade Commission is suing to stop Altria’s $12.8 billion investment in JUUL Labs, claiming that the two companies engaged in anti-competitive practices. That deal, which was announced in December 2018, gave the Marlboro cigarette manufacturer a 35 percent stake in e-cigarette market-leader JUUL.

Just two weeks before signing the agreement with JUUL, Altria shut down its own vaping brands MarkTen and Green Smoke, which accounted for just 4 percent of the convenience store/gas station market that had become dominated by JUUL.

The FTC complaint alleges that Altria agreed to not compete with San Francisco-based JUUL in exchange for a large stake in the upstart company. “Altria and JUUL turned from competitors to collaborators by eliminating competition and sharing in JUUL’s profits,” said Ian Conner, director of the FTC Bureau of Competition.

If Altria is forced to divest, it would be unlikely to recoup more than a fraction of its investment.

“For several years, Altria and JUUL were competitors in the market for closed-system e-cigarettes,” Conner explained. “By the end of 2018, Altria orchestrated its exit from the e-cigarette market and became JUUL’s largest investor.”

In fact, the two companies enshrined the non-competition pact in a relationship agreement filed with the U.S. Securities and Exchange Commission (SEC) at the time of the deal. They agreed not to compete for six years.

Altria and JUUL haven’t completed the purchase yet. Until it has cleared antitrust scrutiny by federal regulators, Altria is unable to convert its non-voting shares to voting shares, or appoint members to the JUUL Labs board of directors.

The FTC voted unanimously to take action to challenge the Altria-JUUL agreement. According to the FTC, it issues an administrative complaint when it has reason to believe the law has been violated, and “it appears to the Commission that a proceeding is in the public interest.”

Since the 2018 agreement, Altria has written down the value of its $12.8 billion investment twice.

The complaint is the first step of a proceeding much like a trial. The allegations against the companies are tried in a hearing before an administrative law judge. The Altria-JUUL trial is scheduled to begin in January of next year. Altria says it plans to fight the allegations.

“We believe that our investment in JUUL does not harm competition and that the FTC misunderstood the facts,” said Altria general counsel Murray Garnick. “We are disappointed with the FTC’s decision, believe we have a strong defense and will vigorously defend our investment.”

Since the 2018 agreement, Altria has written down the value of its $12.8 billion investment twice. The original $38 billion valuation of JUUL has now declined to about $12 billion, as JUUL remains mired in lawsuits and investigations. If Altria is forced to divest, it would be unlikely to recoup more than a fraction of its investment.

Smokers created vaping without any help from the tobacco industry or anti-smoking crusaders, and vapers have the right to keep innovating to help themselves. My goal is to provide clear, honest information about the challenges vaping faces from lawmakers, regulators, and brokers of disinformation. I recently joined the CASAA board, but my opinions aren’t necessarily CASAA’s, and vice versa. You can find me on Twitter @whycherrywhy

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