SAN FRANCISCO and RICHMOND, Va. – Between $4 billion and $7 billion: That’s the range one New York tobacco analyst believes Altria Group Inc. will pay for a 30% to 40% stake in Juul Labs, a three-year-old startup e-cigarette maker that currently holds a dominant share of that market.
Rumors of the potential deal surfaced after The Wall Street Journal reported Nov. 28 that Richmond, Va.-based Altria was in talks with San Francisco-based Juul. A spokesperson for Altria said it does not comment on “rumors and speculation,” while officials with Juul did not comment by posting time.
Wells Fargo Securities based its estimates on a $15 billion to $16 billion valuation of the company and numbers from New York-based Nielsen that put Juul’s total retail sales for 52 weeks ending in November at $1.8 billion. From that data, Bonnie Herzog, managing director of consumer equity research for New York-based Wells Fargo, said the figures imply a 7x to 7.5x multiple.
“While we assume [Altria] would pay a fairly rich multiple to acquire its Juul stake, we think this would be the absolute right decision for [Altria], given where we think the reduced-risk industry is heading and because Juul is the ‘it’ brand,” she said in a research note.
The deal was probably part of a larger “master plan” on the part of Altria, which would use Juul to help round out its reduced-risk portfolio, Herzog said. For Juul, the partnership would help the e-cigarette maker “better navigate the regulatory landscape.”
In recent weeks, the U.S. Food and Drug Administration (FDA) announced several proposals that could potentially ban menthol cigarettes and flavored cigars and place new restrictions on flavored e-cigarettes. As a result of talks with the FDA, Juul announced in November that it would stop supplying certain vape pod flavors to retail stores.
With regard to Altria’s deal with New York-based Philip Morris International to market its heat-not-burn device iQOS, Herzog said, “We continue to believe that Juul and iQOS broadly appeal to different demographics. … Juul appeals to millennials and hipsters, [while] iQOS appeals to slightly older and more affluent smokers.”
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