Summary
Altria has followed up its Cronos deal by dropping $12.8 billion to take a 35% stake in Juul Labs.
The deal reveals a lot about the future strategic direction of Altria, but also creates questions.
The high price of the deal versus the immediate financial gain create a cash and balance sheet squeeze that takes away much of Altria's flexibility.
Altria Group (MO) has made a seismic strategic move by spending $12.8 billion to take a 35% stake in privately owned Juul Labs. Juul is currently the number one e-cig manufacturer in the United States that recently gained notoriety for its popularity with the youth demographic. The companies will partner up at the operational, and managerial levels of Juul. This includes Altria appointing a number of directors, and providing Juul with access to Altria's large scale infrastructure, retail space, intellectual property, and expertise with regulators.
The deal between these two comes with various strategic and financial implications for Altria. While the logic is sound for Altria to jump into a high growth and synergistic partnership such as Juul, the deal comes with various benefits and potential risks that investors need to consider before celebrating this blockbuster deal. We review some key observations of the deal.
