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The Federal Trade Commission moved to reverseAltria Group Inc.’s troubled $12.8 billion deal to take a stake in vaping company Juul Labs Inc., saying the companies are competitors who shouldn’t be in business together.
The FTC said that as competitors, Altria and Juul monitored each other’s e-cigarette prices closely and “raced to innovate.” Altria, the maker of Marlboro cigarettes, also leveraged its ownership of leading brands across tobacco categories to secure favorable shelf space at retailers throughout the U.S., the complaint alleges.
“For several years, Altria and Juul were competitors in the market for closed-system e-cigarettes. By the end of 2018, Altria orchestrated its exit from the e-cigarette market and became Juul’s largest investor,” Ian Conner, Director of the Bureau of Competition, said in astatement. “Altria and Juul turned from competitors to collaborators by eliminating competition and sharing in Juul’s profits.”
The late 2018 investment for a 35% stake has become a headache for Altria, which has written down the investment twice, slashing the value of its investment to $4.2 billion in January. The deal was criticized from the start, with Altria investors bemoaning the price tag and longtime Juul employees saying the transaction flew in the face of Juul’s stated mission to rid the world of cigarettes.
The deal has given the largest U.S. cigarette maker a piece of the nation’s largest e-cigarette maker at a time when its main business is shrinking. Cigarette volumes have been falling for years, with manufacturers relying on price increases to boost profits.
The FTC said Altria’s acquisition of Juul shares amount to “an unreasonable restraint of trade” and “substantially lessened competition” under antitrust laws.
The U.S. Securities and Exchange Commission is investigating the deal, according to a report last month from the Wall Street Journal.
Altria has been “highly disappointed” in the investment, Chief Executive Officer Howard Willard said in January.
Altria in January narrowed the terms of its cooperation with Juul, saying it would no longer give it marketing help and would instead focus solely on helping Juul steer through its growing regulatory challenges. Juul planned restructure its board if it received antitrust clearance. It planned to include two directors designated by Altria, three independent directors, the Juul CEO and three directors designated by Juul stockholders other than Altria.
An administrative trial is set to begin on Jan. 5, 2021.
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