Altria & NJOY Reach $2.75B Deal

RICHMOND, Va. — Altria Group Inc. is making moves around its investment in alternative tobacco products.

The manufacturer entered into a definitive agreement to acquire NJOY Holdings Inc. for approximately $2.75 billion in cash, the company announced on March 6.

"We believe we can responsibly accelerate U.S. adult smoker and competitive adult vaper adoption of NJOY ACE in ways that NJOY could not as a standalone company," said Billy Gifford, Altria's CEO. "We believe the strengths of our commercial resources can benefit adult tobacco consumers and expand competition. We are also excited to welcome NJOY's talented employees to Altria at closing."

The transaction terms include additional $500 million in cash payments that are contingent upon regulatory outcomes with respect to certain NJOY products.

"As a result of this transaction, Altria's enhanced smoke-free portfolio will include full global ownership of products and technologies across the three largest smoke-free categories and a joint venture with JT Group for the U.S. commercialization of heated tobacco stick products," Gifford added.

According to Altria, the e-vapor category is the largest smoke-free category in the United States. In 2022, the e-vapor category:

• Included nearly 14 million U.S. adult tobacco consumers, including 9.5 million exclusive adult vapers;
• Generated approximately $7 billion in U.S. retail sales; and
• Represented approximately 15 percent of total estimated equivalized U.S. tobacco volumes and more than 50 percent of total estimated equivalized smoke-free tobacco volumes.

"We are excited to add NJOY's e-vapor intellectual property as a new platform that we believe we can build on to help more adult smokers transition to smoke-free alternatives," said Olivier Houpert, Altria's new chief innovation and product officer.

Making the Case for NJOY

Currently, the Food and Drug Administration (FDA) has issued marketing granted orders (MGOs) for 23 e-vapor products and devices. In 2022, NJOY received MGOs for six products, including:

• NJOY ACE e-vapor device;
• NJOY ACE POD, rich tobacco flavor, 5 percent nicotine concentration;
• NJOY ACE POD, classic tobacco flavor, 5 percent nicotine concentration;
• NJOY ACE POD, classic tobacco flavor, 2.4 percent nicotine concentration;
• NJOY DAILY EXTRA, rich tobacco flavor, 6 percent nicotine concentration; and
• NJOY DAILY, rich tobacco flavor, 4.5 percent nicotine concentration.

As Altria pointed out, NJOY also currently sells menthol-flavored e-vapor products. NJOY submitted premarket tobacco product applications (PMTAs) for these products prior to the FDA deadline of Sept. 9, 2020, and those PMTAs remain under FDA review.

NJOY ACE, NJOY's leading brand, is a pod-based e-vapor product that is only available in approximately 33,000 U.S. retail stores and the brand represented approximately 85 percent of NJOY's 2022 total retail shipments, according to Altria.

Due to NJOY's small sales force and the limited distribution and visibility of ACE, awareness of the brand among the adult tobacco consumer is low. As a result, the 2022 retail share of ACE pods in U.S. multioutlet and convenience stores was approximately 3 percent, the company added.

According to Altria, its research indicates that once adult smokers and adult vapers try ACE, it performs on par with the leading e-vapor brand. Additionally:

• Approximately 40 percent of ACE pod sales were tobacco-flavored in 2022, a higher percentage than the leading two e-vapor brands and the overall e-vapor category.
• NJOY also sells its NJOY DAILY disposable e-vapor products in approximately 23,000 U.S. retail stores.
• NJOY-branded products were not included among the most often used usual brand among middle and high school e-cigarette users in the 2022 National Youth Tobacco Survey.
• NJOY also has access-restriction technology in development for its devices. This technology uses Bluetooth connectivity to authenticate the user before unlocking the device.
• NJOY has a strong commercial relationship with Shenzhen Smoore Technology Limited for the development and manufacturing of its e-vapor products.

Transaction Details

Under the terms of the transaction, Altria will pay NJOY approximately $2.75 billion in cash upon closing. Transaction terms also include additional contingent cash payments up to $500 million as follows:

• NJOY will receive $250 million if the FDA issues an MGO for the NJOY ACE POD, menthol flavor, 5.0 percent nicotine concentration product either alone or in combination with the NJOY ACE POD, menthol flavor, 2.4 percent nicotine concentration product.
• If the FDA issues an MGO for the NJOY ACE POD, menthol flavor, 2.4 percent nicotine concentration product but not the NJOY ACE POD, menthol flavor, 5 percent nicotine concentration product, NJOY will receive a payment of $125 million.
• NJOY is currently preparing PMTA filings for two non-tobacco or menthol flavored ACE pods that would be paired with NJOY's access-restriction technology. If the FDA issues an MGO for either of these applications, NJOY will receive a payment of $125 million (a total contingent payment of $250 million if the FDA authorizes both PMTAs).

Perella Weinberg Partners LP and Morgan Stanley & Co. LLC are acting as financial advisors to Altria in connection with the transaction. Morgan Stanley Senior Funding Inc. has committed to provide short-term financing to Altria. White & Case LLP and Arnold & Porter LLP are providing legal counsel to Altria.

Moelis & Co. LLC is acting as the financial advisor to NJOY in connection with the transaction. Weil, Gotshal & Manges LLP is providing legal counsel to NJOY.

Altria's Stake in Juul Labs

The tobacco company exchanged its entire minority economic investment in Juul Labs Inc. for a non-exclusive, irrevocable global license to certain Juul heated tobacco intellectual property.

"We believe exchanging our Juul ownership for intellectual property rights is the appropriate path forward for our business," said Billy Gifford, Altria's CEO. "Juul faces significant regulatory and legal challenges and uncertainties, many of which could exist for many years. We are continuing to explore all options for how we can best compete in the e-vapor category."

In December 2018, Altria made a $12.8-billion investment in Juul which represented a 35 percent economic interest — a stake Altria still holds today. The move included a noncompete agreement; however, in September 2022 Altria disclosed its plans to end that agreement in a filing with the U.S. Securities Exchange Commission, as Convenience Store News previously reported.

Richmond-based Altria's wholly owned subsidiaries include Philip Morris USA Inc. and John Middleton Co. Its smoke-free portfolio includes ownership of U.S. Smokeless Tobacco Co. LLC and Helix Innovations LLC.

Additionally, Altria has a majority-owned joint venture, Horizon Innovations LLC, and, through a separate agreement, has the exclusive U.S. commercialization rights to the IQOS Tobacco Heating System and Marlboro HeatSticks through April 2024.