Altria-Juul Deal Goes to Trial

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 [e-mail]

(END) Dow Jones Newswires

June 02, 2021 07:30 ET (11:30 GMT)

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