Altria Group Inc. said Thursday it invested $12.8 billion in cash in Juul Labs Inc. The cash investment values Juul at about $38 billion, pushing the closely held company’s valuation past other startups such as Pinterest Inc. and Elon Musk’s Space Exploration Technologies Corp., Altria said Juul will stay completely independent.
“We understand the controversy and skepticism that comes with an affiliation and partnership with the largest tobacco company in the U.S.,” Juul Chief Executive Kevin Burns said in a written statement Thursday. “We were skeptical as well. But over the course of the last several months we were convinced by actions, not words, that in fact this partnership could help accelerate our success switching adult smokers.”
Juul’s role in the vaping space has been somewhat controversial. The company’s products have become popular with users including teenagers. But Juul has said it aims for its products to give older smokers an option that isn’t as bad for them.
Altria Chief Executive Howard Willard said the Juul investment is about preparing for a time when people choose noncombustible products over cigarettes, calling Juul a leader in switching adult smokers. As part of its investment, Altria said it would give Juul shelf space by its own products and let Juul market to Altria’s customers using its databases. Juul can also use Altria’s retail footprint of about 230,000 stores.
If antitrust regulators approve the deal, Altria can appoint one-third of the directors on Juul’s board, Altria said.
Altria is limited from expanding its 35% stake in Juul as part of a standstill agreement. For six years from the deal’s close, Altria can’t transfer or sell Juul shares.
Richmond, Va.-based Altria is taking out $14.6 billion in debt to finance the Juul stock purchase. It also said it may use the debt to finance an investment it announced in Canadian marijuana company Cronos Group Inc.
As a result, Altria said Thursday it plans to cut its workforce and reduce spending on third-party services to help offset the interest expense from the debt. The moves will help it save between about $500 million and $600 million in annual costs by the end of 2019, Altria said.
A spokesman for Altria said the company has yet to determine the number of jobs it would cut. Altria also said it expects to have a restructuring charge between about $230 million and $280 million before taxes, with most of the charge being recorded in the fourth quarter.