Altria begins to look like tobacco’s bad bank

3 minute read

Packs of Marlboro cigarettes are displayed for sale at a convenience store in Somerville, Massachusetts July 17, 2014. REUTERS/Brian Snyder

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NEW YORK, June 22 (Reuters Breakingviews) - Smoke doesn’t always rise. Altria (MO.N), the maker of Marlboro cigarettes, lost around $7 billion of market capitalization on Wednesday as investors processed the unmistakable aroma of a government crackdown. The $75 billion company is starting to look like the riskiest parts of the tobacco industry, rolled up into a single bundle.

Altria separated from Philip Morris International (PM.N) in 2008 to contain its exposure to the U.S. market. Once the main risk from that market was lawsuits, but now it’s government intervention. The Joe Biden administration said on Tuesday it would forcibly lower the amount of nicotine in cigarettes. Worse, the Food and Drug Administration is thinking of banning e-cigarettes made by Altria’s partner Juul, for which the Marlboro maker paid $12.8 billion for a 35% stake in 2018.

Juul had problems aplenty, but investors were still ascribing it some option value. Altria itself had written its investment down to $1.6 billion as regulatory setbacks and negative publicity over teen vaping and lung damage piled up. Yet the fall in the company’s value on Wednesday, more than four times that amount, suggests embers of optimism still smoldered.

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Altria now has a strategic problem. Juul was its best bet for diversifying away from U.S. cigarettes. A partnership with sibling Philip Morris International to sell smokeless device IQOS hit the skids, with the product pulled from U.S. shelves. And with a 48.1% share of the U.S. retail cigarette market, Altria has much to lose if nicotine restrictions really do end up curbing smoking – something yet to be proven either way.

If there’s anything positive that comes out of this, it’s that Altria could escape from an agreement it had with Juul not to enter the vaping market on its own. If Altria writes down its investment in Juul by 90% - and as of its most recent quarter, the writedowns stood at 87.5% - the non-compete becomes void. Altria’s smokeless ambitions may still rise from the ashes, in some form at least.

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)


- The U.S. Food and Drug Administration on June 21 said it would move ahead on writing proposed rules to lower the maximum level of nicotine allowed in cigarettes.

- The FDA is also preparing to potentially ban e-cigarettes from Juul Labs from the U.S. market, according to a June 22 Wall Street Journal report. Altria partnered with Juul through a $12.8 billion investment in December 2018, receiving a 35% stake and agreeing not to compete with the company in the e-cigarette market.

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Editing by John Foley and Sharon Lam

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