U.S. Sues to Unwind Altria’s $12.8 Billion Investment in Juul

The FTC filed an administrative complaint against Altria on Wednesday, according to the statement. An administrative trial is scheduled for Jan. 5, 2021.

“We believe that our investment in Juul does not harm competition and that the FTC misunderstood the facts,” Altria’s general counsel, Murray Garnick, said in a statement. “We are disappointed with the FTC’s decision, believe we have a strong defense and will vigorously defend our investment.” Juul declined to comment.

Altria, the largest U.S. tobacco company by sales, bought a 35% stake in Juul in December 2018. Sales of Juul’s sleek vaporizer had surged, vaulting it to the top of the e-cigarette market. Altria “dealt with this competitive threat by agreeing not to compete in return for a substantial ownership interest in Juul,” the FTC said in the statement.

One issue that raised concerns among federal antitrust officials was the Marlboro maker’s control of shelf space in stores, The Wall Street Journal previously reported.

Two weeks before announcing its deal with Juul in 2018, Altria closed its e-cigarette business. Then, as part of the tie-up, Altria agreed to put Juul coupons on cigarette packs, send Juul promotions to its mailing list of cigarette smokers and give Juul the shelf space that Altria’s MarkTen e-cigarettes had occupied. Juul subsequently took some of that shelf space.

If the deal had been approved by the FTC, Altria would have been able to appoint representatives to Juul’s board and count Juul’s earnings toward its own earnings.

The FTC didn’t say if it would seek to force Altria to sell its stake, in which case the tobacco company could recoup some of its investment.

The FTC said that Altria’s acquisition of Juul shares and other related agreements constitute an “unreasonable restraint of trade” and “substantially lessened competition.”

Juul has come under increasing regulatory and financial pressure since the Altria investment. Blamed for a surge in underage vaping in the U.S., Juul voluntarily halted sales of its sweet and fruity-flavored refill pods, which are popular among teenagers.

Altria in January took a second big write-down of its stake in Juul and stripped down its agreement to provide services to the startup. Altria now values the e-cigarette maker at about $12 billion, down from its $38 billion valuation in December 2018.

Under the revised agreement, Altria is no longer providing marketing and retail distribution for the startup as the companies had originally agreed. Altria is focused on helping Juul with regulatory affairs, including the submission of its products for approval by the Food and Drug Administration. Juul and its rivals must submit their products for federal review by May to remain on sale in the U.S.

Write to Jennifer Maloney at jennifer.maloney@wsj.com and John D. McKinnon at john.mckinnon@wsj.com