RICHMOND, Va. — Altria Group Inc. has exercised its option to be released from its noncompete agreement with vaping company Juul Labs Inc., the tobacco company said in a Sept. 29 filing with the U.S. Securities & Exchange Commission (SEC).
The agreement required that Altria participate in the e-vapor business only through San Francisco-based Juul Labs. But it has the option to be released from the obligations under certain circumstances, including if the carrying value of its investment in Juul is not more than 10% of its initial carrying value of $12.8 billion. As of June 30, 2022, the carrying value of Altria’s investment in Juul was $450 million, the company said.
“We believe the decision to terminate our non-compete maximizes our flexibility to compete in the e-vapor space while maintaining our economic interest in JUUL,” Steven Callahan, spokesperson for Richmond, Va.-based Altria, told CSP Daily News.
The permanent termination of the noncompete obligations with Juul include the loss of Altria’s Juul board designation rights other than the right to appoint one independent director as long as its ownership continues to be at least 10%, as well as the loss of its preemptive rights, consent rights and certain other rights with respect to the company’s investment in Juul and the conversion of its Juul shares to single vote common stock, “significantly reducing” Altria’s voting power, it said.
Altria will still have a 35% stake in Juul.
The move would give Altria, maker of Marlboro cigarettes, the flexibility to acquire another electronic-cigarette brand or develop its own new vaping products, according to a Wall Street Journal report.
In second-quarter 2022, Altria said it recorded a non-cash pre-tax unrealized loss of $1.2 billion because of a decrease in the estimated fair value of its investment in Juul. But the company said it continues to believe that e-vapor products, including Juul, can play an important role in tobacco harm reduction.
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