Tobacco giant Altria Group, also noted as the maker of Marlboro cigarettes, confirmed Thursday in an official announcement that it has reached a $12.8 billion investment deal with popular e-cigarette startup Juul Labs.
The company is the United States market leader in e-cigarettes, and the Altria deal is expected to give it more prominent distribution in convenience stores and other traditional retail channels.
Altria is buying 35% of San Francisco-based Juul, valuing it at £38bn. The cigarette maker also agreed not to sell the shares for six years, during which Juul will be Altria's only e-vapor business.
The Juul investment marks one of several bets Altria is making to position itself in a world with fewer cigarette smokers.
Partnering with Big Tobacco may not seem like the best way to do that, optically speaking.
He said the company ultimately was convinced the deal could "help accelerate our success switching adult smokers".More news: 'A Blow to Morale': Afghanistan Generals Bemoan US Withdrawal Plans
The Food and Drug Administration (FDA) in September gave Juul 60 days to prove the vaping giant can keep the nicotine devices away from children, a threat that is still developing. The press release makes repeated mention of adult smokers - no accident, in a week when Juul was called out by name by the U.S. Surgeon General in an advisory declaring youth e-cigarette use an epidemic. S&P downgraded the company's credit rating to BBB following the Juul and Cronos deals, noting it doesn't see "significant near-term investment returns" for Altria.
Altria will be subject to a so-called standstill agreement under which it may not increase its stake beyond 35 per cent.
"This investment gives the tobacco industry direct access to a new pipeline of millions of youth e-cigarette users, most of whom were not smokers in the first place", the group wrote in a statement. Nicotine use is now skyrocketing among teens due to vaping. In its release Thursday, Altria said Juul represented approximately 30 percent of the United States e-cigarette space, when factoring in online sales and products in specialty stores such as vape shops. The US-based company has captured 75 percent of the e-cigarette market, with expansion plans targeting Europe and Asia.
Altria's cigarette volumes declined by 6.3 per cent for the nine months of 2018 from a year earlier.
In 2017, a federal court ordered cigarette companies, including Altria, to pay for ads admitting the dangers of smoking, including the statement "Smoking kills 1,200 people a day".
Bonus amounts will depend on many factors, including how long employees have been at Juul and how many stock option they've been granted, according to the report.