Altria-Juul Deal Goes to Trial
02 Juni 2021 - 01:45PM
Dow Jones News
By Jennifer Maloney
Altria Group Inc. and the Federal Trade Commission are set to
square off over allegations that the Marlboro maker engaged in
anticompetitive practices ahead of its 2018 investment in
e-cigarette startup Juul Labs Inc.
The FTC is expected to argue in an antitrust trial starting
Wednesday that Altria pulled its e-cigarettes off the U.S. market
illegally at the insistence of Juul as the two companies were
discussing a deal, according to legal filings. Altria is expected
to argue that its e-cigarettes were failures, and it jettisoned
them amid regulatory pressure and an internal reckoning about the
company's inability to develop a vaping product that consumers
liked, filings say.
If the FTC prevails, it could unwind Altria's 35% interest in
Juul, which the Marlboro maker bought in December 2018 for $12.8
billion. The agency is seeking to force Altria to divest its stake
and terminate the companies' noncompete agreement. The case will be
heard by an administrative law judge, who will make an initial
decision; the agency's commissioners will then vote on the
matter.
Altria made a big bet on Juul because its sleek vaporizers were
fueling a surge in the e-cigarette market and hastening the decline
of cigarettes. Its investment made Juul one of the highest-valued
startups in the U.S.
But the e-cigarette maker's sales have tumbled and its growth
prospects have darkened. Blamed for an increase in underage vaping,
Juul has faced regulatory crackdowns, lawsuits and investigations
into its marketing practices. Altria valued its stake in Juul at
$1.5 billion as of March. Altria's losses led to the departure last
year of Chief Executive Howard Willard, who spearheaded the
deal.
The FTC in April of last year sued to unwind the deal.
A key question at trial will be why, when it was in talks with
Juul, Altria stopped selling its own e-cigarettes.
"The results of this deal are repugnant to antitrust laws," the
FTC wrote in a pretrial brief. "Altria cited a variety of
pretextual justifications, such as concerns over youth vaping, to
disguise the true motive for its actions."
Altria in October 2018 announced it was halting the sale of its
pod-based and fruity-flavored e-cigarettes in response to a call by
the Food and Drug Administration for e-cigarette makers to help
stem a surge in vaping among children and teens. Then in December
of that year, two weeks before the Juul agreement was signed,
Altria pulled its remaining e-cigarettes off the market.
Altria and Juul in pretrial legal filings say that Altria's
e-cigarettes were "absolutely terrible," didn't deliver nicotine
successfully enough to convert cigarette smokers and probably
weren't going to pass an impending FDA review. Altria's e-cigarette
business was losing money and Mr. Willard had decided that Altria
must start from scratch if it wanted to make a competitive
e-cigarette, the filings say.
Altria and Juul negotiated a noncompete agreement that allowed
Altria's existing e-cigarettes to remain on the market, which Juul
didn't see as a threat, according to the companies' legal filings.
Juul did insist in negotiations that Altria couldn't develop new
e-cigarette products while Altria had access to detailed
information on Juul's products and research, the companies' legal
filings say. Both of Altria's announcements about halting
e-cigarette sales took Juul by surprise, the filings say.
Juul and Altria argue that since the deal was struck,
competition in the e-cigarette market has increased, not decreased:
Juul's market share has fallen, as have e-cigarette prices.
Write to Jennifer Maloney at jennifer.maloney@wsj.com
(END) Dow Jones Newswires
June 02, 2021 07:30 ET (11:30 GMT)
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