Altria nears deal to buy e-cigarette maker Njoy for at least $2.75bn

Altria, the maker of Marlboro cigarettes in the US, is nearing a deal to buy e-cigarette company Njoy for at least $2.75bn, according to people familiar with the matter.

The deal would give Altria a second bet on the vape market, five years after it spent $12.8bn to buy 35 per cent of Juul, the US market leader in e-cigarettes at the time. Altria has since cut its valuation of that investment to just $250mn after Juul suffered a series of regulatory and legal blows.

Last year, Njoy received approval from the US Food and Drug Administration to continue selling its tobacco-flavoured Ace pod-based vape brand and its Njoy Daily disposable vape product, as part of the regulator’s sweeping review of 6.7mn vaping products.

In contrast, other e-cigarette products have struggled to gain approval from the agency. Juul’s products were banned last year for contributing to the rise in underage vaping, but they remain on shelves after a US appeals court placed a stay on the FDA’s decision and the agency launched an additional review.

Njoy’s current shareholders could receive a further $500mn payout as part of the deal if further regulatory milestones are achieved, including the approval of its menthol-flavoured products under review by the agency, according to a person familiar with the matter.

The prospective deal, first reported by The Wall Street Journal, would mark a huge turnround for US-based Njoy, which in 2017 emerged from bankruptcy protection.

Its main shareholders include Mudrick Capital Management, which in 2017 paid about $40mn for a controlling stake in the company, according to a person familiar with the matter. Mudrick has since partly sold down the stake.

Another investor is Homewood Capital, a private equity firm run by Douglas Teitelbaum, who served as Njoy’s chair until last year.

“If [Altria] want to know they are going to have a [vape] product, there’s really only one high-quality, super well-made product that can offer them certainty of being in the marketplace,” said an Njoy investor.

Altria declined to comment. Njoy did not immediately respond to a request for comment.

In September, Altria ended a non-compete agreement with Juul, but its management has continued to express confidence in the future of e-cigarettes.

“E-vapour remains the largest smoke-free category in the US and the most successful category in transitioning US smokers away from cigarettes,” Altria chief executive Billy Gifford said on an earnings call this month.

In the three months to mid-February this year, Juul accounted for 26.5 per cent of US e-cigarette sales, down from 34.3 per cent a year earlier, according to a Cowen analysis of NielsenIQ data. Njoy made up just 2.7 per cent of the market.

Juul secured new funding from two existing investors last November but has continued to cut jobs to preserve cash as it seeks to avert a mooted Chapter 11 bankruptcy filing.

Juul executives have sounded out tobacco companies including Japan Tobacco and Philip Morris International in recent months about a possible investment, sale or licensing agreement, according to people briefed on the talks who said potential investors were still wary of the remaining legal and regulatory risks.