Altria Group Inc. took another big charge on its investment in Juul Labs Inc. and stripped down its agreement to provide services to the startup as it weathers regulatory crackdowns on the e-cigarette market.
The tobacco giant on Thursday said the value of its stake in Juul fell by $4.1 billion in the fourth quarter. It now values the e-cigarette maker at about $12 billion, down from its $38 billion valuation when Altria invested in 2018.
It is the second big charge the Marlboro maker has taken on its controversial investment. In October, Altria wrote down its Juul stake by $4.5 billion. The company said the latest charge reflected mounting litigation against Juul.
Facing an accelerating decline in cigarette sales, Altria in 2018 paid $12.8 billion cash for a 35% stake in Juul, making it one of Silicon Valley's most valuable startups.
Juul since then has been buffeted by lawsuits, bans on its products and investigations into its marketing practices. Blamed for a surge in underage vaping, the startup has pulled most of its flavors from the U.S. market and scaled back its international expansion.
Under the revised agreement between Altria and Juul, Altria will no longer provide marketing and retail distribution for the startup as they had originally agreed. Altria will now focus on helping Juul with regulatory affairs, including the submission of its products for approval by the Food and Drug Administration. Juul and its rivals must submit their products by May for review to remain on sale in the U.S.
The new deal also gives Altria the option to launch its own e-cigarettes if Juul is prohibited by federal law from selling vaping products in the U.S. for at least a year or if the value of Altria's investment in Juul falls below $1.28 billion. The stake is currently valued at $4.2 billion.
Altria's investment in Juul remains in limbo more than a year after the deal was made, as federal antitrust officials continue to probe the arrangement, which gave the country's biggest cigarette seller a large stake in a potential threat to its core business. Altria also scrapped its own e-cigarette products shortly before it invested in Juul.
The Wall Street Journal reported earlier this month that antitrust officials have concerns about the deal, including Altria's control of shelf space in retail stores and its decision to give Juul some of the space.
Until the Federal Trade Commission's review is complete, Altria can't convert its nonvoting shares to voting shares, appoint representatives to Juul's board or count Juul's earnings toward its own earnings. A former Altria executive was appointed Juul's chief executive late last year in a broader shake-up.
Under the new agreement, Juul will expand and diversify its board and add a litigation oversight committee. Juul's board currently has seven members, all of them men. The new board will have nine members, including two representing Altria, and three independent directors, one of whom Altria will nominate.
Altria shares were little changed in premarket trading near $50 apiece. The stock has been under pressure in recent years amid declines in its core business, the crackdown on e-cigarettes and scrapped merger talks with sister company Philip Morris International Inc.
Write to Jennifer Maloney at firstname.lastname@example.org
Corrections & Amplifications
This article was corrected on Feb. 6, 2020 because an earlier version incorrectly stated Juul had five board members in the 11th paragraph. Juul has seven board members, all of them men.
Juul Labs Inc. has seven board members, all of them men. "Altria Takes $4.1 Billion Charge on Juul Investment," at 7:29 a.m. ET on Jan. 30, incorrectly stated Juul had five board members in the 14th paragraph. (Feb. 6. 2020)