Altria Buys Into Oral Pouch Market

Marlboro maker buys 80% of group that produces tobacco-derived nicotine delivery products
Photograph courtesy of Altria Group

RICHMOND, Va. — Altria Group Inc. has made a move into the nicotine-pouch world, having struck definitive agreements with the shareholders of Burger Sohne Holding from Switzerland to acquire 80% ownership of certain companies within the Burger Group that will commercialize On-branded products worldwide.

Upon closing, Altria will invest $372 million for an 80% ownership interest in the global business. Altria expects to complete the transaction with the Burg, Switzerland-based Burger Group of companies in the second half of 2019, subject to customary closing conditions, and to finance the transaction with available cash, the company said.

“We’re excited to add On to our companies’ terrific noncombustible portfolio,” said Howard Willard, chairman and CEO of Richmond, Va.-based Altria, known largely for its Marlboro-branded cigarettes. “Through our companies and investments, we have access to the leading products and brands in the moist smokeless tobacco, e-vapor and heated tobacco categories. This acquisition will add another noncombustible product to our portfolio in what we believe is a high-potential, rapidly developing oral TDN (tobacco-derived nicotine) products category.”

The oral TDN pouches rival the Zyn product from Richmond, Va.-based Swedish Match.

The On portfolio consists of seven flavors and five nicotine strengths for a total of 35 SKUs, all of which were available for sale in the U.S. market as of Aug. 8, 2016—meaning that the product is not subject to the FDA’s new-product approval process. The On line of products is available in limited distribution in several thousand U.S. retail outlets. It is available in Sweden and Japan and is also sold via e-commerce, Altria said.

Altria formed a new subsidiary, Helix Innovations, which upon closing, will be the parent company of the Burger Group subsidiaries currently manufacturing and selling On. The parties have also entered into an agreement under which Altria will distribute On across the country in advance of the transaction closing, which the company expects will allow Altria to quickly expand retail distribution.

According to Chicago-based IRI, sales of TDN products grew to about $60 million in the United States in 2018, demonstrating approximately 250% growth compared to 2017, Altria noted in a press release. About 20 million adult, U.S. smokers are interested in tobacco products that offer reduced-harm potential and, specifically, more than 6 million adult tobacco consumers are open to trying oral TDN products, Altria officials said.

“We’re excited to put our resources behind On and participate in what we expect to be a fast-growing category,” said Allison Bolyard, senior director and general manager of Helix. “Combining our deep understanding of adult tobacco consumers and Altria’s best-in-class sales and distribution infrastructure, we expect to drive the On brand toward sustainable, long-term leadership.”

“We applaud Altria’s decision to aggressively enter the high-potential, rapidly developing, oral tobacco-derived nicotine product category,” said Bonnie Herzog, managing director of consumer equity research for New York-based Wells Fargo Securities in a recent newsletter. “The transaction … will provide [Altria] an immediate answer to Swedish Match’s Zyn.”

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