Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Altria's Stake In Juul

Summary

Altria rumored to take 'significant' minority stake in Juul Labs Inc.

Possibility for each company to benefit from the other's targeted market.

The move could differentiate Altria from the rest of the major tobacco players.

Altria Group, Inc. (NYSE: MO) is said to be in talks with Juul Labs Inc, the popular e-cigarette startup with an estimated valuation of $15 billion, to take a “significant minority stake.” Altria, whose subsidiary brands include Marlboro, has seen the effects of a slowly shrinking market for traditional cigarettes. Juul, on the other hand, has been enormously successful in capturing control of approximately 70% of the $3 billion e-cigarette market with its sleek e-cigarette design and appealing vapor flavors. While the rapidly growing market that Juul has captured is controversial, due to its link with increased teen smoking, it is still a market that remains attractive for Altria as the company seeks different avenues of growth. Altria also sells its own e-cigarettes, but it holds a measly 4% compared to Juul’s dominating hold on the e-cigarette market.

A potential collaboration between the two companies presents opportunities for significant synergies that could be beneficial to both parties involved. As a larger and more established brand, Altria enjoys a degree of loyalty and reach that Juul could greatly benefit from in terms of shelf space and retail partnerships. This would allow Juul to potentially expand its market beyond the youth market that has garnered the company much negative attention. This would be even more pressing given recent campaigns by the Food and Drug Administration (FDA) to combat underage and teen e-cigarette use has forced Juul to roll back on its flavored pod products, which are seen to be a major draw for younger smokers. Altria, also being potentially affected by the proposed menthol ban by the FDA, stand to benefit from the large following that Juul has garnered. This would give the major tobacco parent company a growth opportunity outside its massive, but slowly shrinking cigarette market.

While neither company has commented on talks of Altria taking a minority stake in Juul, the deal is likely to be a fairly large expense for Altria given Juul’s estimated $15 billion valuation. An agreement between the two companies could also press more restrictions from the FDA, which may further negatively affect the tobacco and e-cigarette industries as whole. Regardless, the potential move by Altria is a significant one for the industry, which faces mounting criticism and little growth in the traditional tobacco products.