Altria Group Inc took another $4 billion (€3.6 billion) charge on its investment in Juul Labs Inc and said it had reworked its deal terms with the embattled e-cigarette maker, which is facing increased regulatory scrutiny amid a backlash against vaping.
The Marlboro maker in the United States said that the fourth-quarter charge was mainly due to the increased number of legal cases pending against Juul and the expectation that the number would continue to grow.
Overall, Altria has recorded $8.6 billion (€7.8 billion) in impairment charges after it took a 35% stake in Juul for $12.8 billion (€11.6 billion) in December 2018.
Those charges brought down the value of its investment to $4.2 billion as of the end of 2019, Altria said.
"I'm highly disappointed in the financial performance of the Juul investment," Altria chief executive Howard Willard said on a post-earnings call. "(The valuation) is substantially below what we had expected."
Shares of Altria fell 6% in after the charges pushed the company to post a fourth-quarter loss of $1.81 billion, compared with a profit $1.25 billion a year earlier.
The company also said it does not expect to receive earnings contributions from Juul over the next three years.
"It's a major black eye for the management. It's a major strategic mistake in hindsight," CFRA Research analyst Garrett Nelson said.
With the Juul deal, Altria had set its sights on re-entering the market for vaping in the face of declining smoking rates and cigarette sales in the United States.
But a string of vaping-related deaths, coupled with increased bans following a surge in teenage vaping, has clouded the prospects of e-cigarette makers, including Juul.
E-cigarette companies are also facing a May deadline to submit applications to the U.S. Food and Drug Administration, proving that their products provide a net benefit to public health.
If a company fails to make its case, the FDA has the power to order its products off the market.
As part of the revised deal, Altria said it would continue to help Juul with regulatory services including the submission of its products for approval by the FDA.
"Right now, our primary focus is on helping Juul file a compelling and complete PMTA (premarket tobacco product application)," Altria CEO said.
Willard added he was "optimistic" that data from a federal youth tobacco survey would be released before the FDA made its decision on the applications and that it shows a reduction in youth usage of e-vapor products.
Juul's new chief executive officer and former Altria executive, K.C. Crosthwaite, has made the FDA application process his central goal and restructured the company to focus on regulatory approval.
Altria will stop providing services including logistics, distribution and access to retail shelf space to Juul, it said, adding that the e-cigarette maker will rejig its board to include two directors designated by Altria.
"This agreement is a continuation of the reset initiated by Juul's leadership team," Willard said.