Cigarette manufacturer Altria Group paid $12.8bn for a 35% stake in e-cigarette maker Juul Labs yesterday, valuing the company at $38bn.
The transaction will give hedge fund manager and Juul investor Tiger Global Management a $1.6bn dividend, according to Bloomberg, which stated that Juul’s employees are set to receive some $2bn through the deal.
Juul was formed by vaporiser producer Pax Labs in 2015 to make e-cigarettes as an alternative to traditional cigarettes, before being spun off two years later. It sells its products online and in convenience stores and vape shops.
The company had declined Altria’s initial approach in early 2018, when it proposed investing in or acquiring Juul at a valuation of approximately $5bn. Kevin Burns, Juul’s CEO, said in a statement that it was convinced by Altria’s apparent willingness to switch customers away from combustible cigarettes.
Altria upped its interest in Juul last month, offering an investment that would have valued it at approximately $30bn, but Juul staff protested the potential deal, claiming it went against the company’s mission of helping smokers quit traditional cigarettes.
In addition to funding, Altria will provide Juul with access to its retail shelf space and its logistics and distribution networks. The size of the deal more than doubles the reported $15bn valuation at which Juul raised money in July this year.
Juul had secured $650m of a planned $1.25bn round, according to a regulatory filing in July. Tiger Global invested $600m to lead that round, according to The Information.
Burns said in the statement: “We know we need to earn trust and prove that this partnership may provide the opportunity to improve upon our early successes and better equip us to tackle the opportunities and challenges that lie ahead.
“When you take a step back, our success ultimately depends on our ability to get our product in the hands of adult smokers and out of the hands of youth. When adult smokers try it, it works. And, the impact is life-changing. This investment and service agreements helps us do just that.”
Photo courtesy of Juul Labs, Inc.