Via Financial Times

US tobacco group Altria’s decision to write down its stake in Juul has raised the spectre of further revaluations at the venture groups, mutual funds and lenders with stakes in the private e-cigarette company.

The fund giant Fidelity and $36.2bn investment firm Tiger Global Management are among the investors facing potential markdowns after Altria disclosed a $4.1bn impairment charge and said it would alter the terms of its partnership with Juul. 

“My guess is they’re all re-marking this position, and a lot of them have also taken material capital off the table,” said Barrett Cohn, chief executive of Scenic Advisement, an investment bank serving private companies. 

Juul has faced mounting problems since Altria’s $12.8bn investment in December 2018 valued the company at $38bn, including the new cash. Altria’s purchase price implied it paid more than $300 per share.

The Marlboro maker attributed the latest writedown to mounting litigation against Juul, which is under pressure from lawmakers and regulators following a rise in teenage vaping. The change gave Juul a new valuation of about $12bn. 

That estimate is lower than where several other large investors — and Juul’s own executives — have recently marked the company, adding to questions about the reliability of valuations in private markets.

Juul chief executive KC Crosthwaite told employees the company’s most recent quarterly internal valuation stood at $20bn, down from $24bn at the end of the third quarter.

Juul’s common shares changed hands at $90 in private secondary markets late last year, however, one person briefed on the matter said, implying the investors had valued the company nearer Altria’s new estimate.

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Fidelity last valued Juul’s shares at about $143 apiece at the end of November — implying a valuation of about $19bn — down from near $273 at the end of May, according to documents posted on its website.

Tiger Global, one of Juul’s earliest investors, reduced their valuation of the company by half to $19bn at the end of September. It said in a letter to its investors at the time that Juul faced “increasing uncertainty on the regulatory front”.

A spokesperson for Tiger Global declined to comment on Altria’s latest writedown.

Lenders to Juul, including the world’s largest asset manager BlackRock, could also face hits to their investments.

BlackRock’s TCP Capital business development company loaned $35m to Juul in early August, its chief executive Howard Levkowitz said during a third-quarter earnings call. A separate BlackRock business development company invested another $17.5m, which was part of the same deal, one person briefed on the transaction said.

Mr Levkowitz told analysts the investment had “a very low loan-to-value [ratio], cash well in excess of our debt and successful business operations in multiple locations”, but would be monitored following Juul’s recent controversies.

BlackRock declined to comment on the status of the investments.

As well as writing down the value of its stake, Altria said last week that it would stop providing sales and distribution services to Juul. The amended “relationship agreement” between the companies will also allow Altria to develop its own e-cigarettes in some circumstances.

“As the landscape continues to change, our number one focus will remain on pursuing a course that sets us on a long-term path of successful pursuit of our mission,” Mr Crosthwaite wrote in a company email. 

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