Philip Morris & Altria End Merger Talks

Juul Labs Inc. said Chief Executive Kevin Burns is stepping down and will be replaced by an executive at tobacco giant Altria Group Inc., which owns a 35% stake in the e-cigarette maker.

The San Francisco company, which faces a potential crippling U.S. ban on most of its products, said Mr. Burns will be replaced by K.C. Crosthwaite, Altria’s chief strategy officer. The company cited the need to focus on regulatory matters for its decision to tap Mr. Crosthwaite, who has experience working closely with regulators.


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Juul said it wouldn’t lobby against the Trump administration’s proposed ban on most flavored e-cigarettes and will suspend all its U.S. product advertising. Also Wednesday, Altria and Philip Morris International Inc. ended their talks for a potential merger of the two Marlboro makers. The talks were spurred in part by the threat Juul posed to their traditional businesses as some smokers switched away from cigarettes.

Instead, Philip Morris said the companies would focus on the launch of their own cigarette alternative in the U.S., a heat-not-burn device called IQOS. Unlike Juul, IQOS has been reviewed and authorized by the Food and Drug Administration.

The two sides had been negotiating for weeks, but the Philip Morris board became increasingly uncomfortable with the deal amid the shifting U.S. regulatory environment, said one person familiar with the matter.

Mr. Burns, a former partner at private-equity firm TPG Capital and executive at yogurt maker Chobani, joined Juul in December 2017. The startup was growing quickly and its sleek vaporizers, introduced in 2015, had already become a teen status symbol and growing problem in U.S. schools.

In 2018, Juul struck a deal with Altria, which invested $12.8 billion in Juul for a 35% stake and several board seats. Mr. Crosthwaite, who led Altria’s IQOS efforts, joined the Juul board. The deal valued the startup at $38 billion and made many of its employees millionaires.

But underage use of e-cigarettes continued to climb in 2018 and 2019, and federal health officials and antitobacco groups blamed Juul. The company says that it hasn’t targeted teens, that it has taken steps to combat underage purchases and that its products are intended for adult cigarette smokers who want to switch.

Citing the surge in underage vaping, the Trump administration earlier this month said it planned to ban all e-cigarettes except those formulated to taste like tobacco. The banned flavors, including mint and menthol, represent more than 80% of Juul’s sales.


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Juul is the subject of several investigations, including a criminal probe by prosecutors in California and investigations by the Food and Drug Administration and Federal Trade Commission into its marketing and business practices.

U.S. health officials have urged adults to stop vaping while the Centers for Disease Control and Prevention investigates a rash of respiratory illnesses that have sickened hundreds of people and caused eight deaths. Juul hasn’t been linked to the illnesses.

Juul’s U.S. sales fell in August as officials raised the alarm about the illnesses, dropping to $278 million in the four weeks ended Sept. 7 from $294 million in the four weeks before that, according to a Wells Fargo analysis of Nielsen data.


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Categories: Altria Group Inc, Business

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9 replies

  1. This is great news for PM, never liked the merger idea even if it gave them Juul.

    Like

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