Morgan Stanley: Antitrust Loss May be Win for Altria

The Federal Trade Commission (FTC) may issue its initial decision in the Altria Group/Juul Labs antitrust case by Feb. 17, according to Morgan Stanley. The investment bank expects the FTC to instruct Altria to divest its stake in the e-cigarette manufacturer.

While Morgan Stanley expects the market to react negatively if the FTC finds that Altria’s investment violates antitrust law, it sees little downside to Altria from an adverse ruling.

Altria would likely appeal the decision, which could result in a multiyear legal process, first with the full Commission and then at the U.S. Court of Appeals. Altria would be able to retain its stake in Juul during this process.

What’s more, Juul’s impaired valuation—the company was worth $1.7 billion in the fourth quarter of 2021, down from $12.8 billion—underscores Juul’s tempered growth prospects.

Also, continuing the legal process leaves open the possibility that the companies can reach a favorable settlement.

Alternatively, if Altria does not contest the FTC’s decision and sells its stake in Juul, it would benefit from crystallizing its loss on the original investment, according to Morgan Stanley, and could apply the tax shield to offset capital gains elsewhere

The case dates to April 2020, when the FTC filed an administrative complaint against the companies, alleging that Altria’s investment in Juul violates federal antitrust laws and seeking to unwind Altria’s investment.

The case has been before the administrative law judge since June 2021, with Altria and Juul defending their relationship and presenting extensive evidence and witnesses in support of maintaining Altria’s investment.

The administrative law judge’s initial deadline to decide was Dec. 22, 2021, but the judge filed an extension twice due to the complexity of the issues and extensive amount of materials in the case.