How Will Altria Benefit From Green Smoke Purchase?

Altria Group executives are hopeful their acquisition of an electronic-vapor cigarette manufacturer will bring added insight to its own Nu Mark e-cigarette company as it prepares to roll out its MarkTen brand.
As reported in a 21^st Century Smoke/CSP Daily News Flash, Altria Group Inc. announced that its subsidiary Nu Mark LLC entered into an agreement to acquire the e-vapor business of Green Smoke Inc. and its affiliates for approximately $110 million in cash, subject to closing adjustments, and up to $20 million in incentive payments. Davidoff iD Orange
“Nu Mark’s entry into the e-vapor category with its MarkTen product was an important development in Altria’s innovation strategy,” said Marty Barrington, Altria’s chairman and CEO. “Adding Green Smoke’s significant e-vapor expertise and experience, along with its supply chain, product lines and customer service, will complement Nu Mark’s capabilities and enhance its competitive position. Further, Green Smoke’s culture of innovation and history of producing high-quality products are consistent with Altria’s culture.”
Green Smoke was founded in 2008 and has operations in the United States and Israel. Green Smoke has sold e-vapor products since 2009 and its revenues for 2013 were approximately $40 million. Green Smoke sells premium products, with most of its sales in the United States. Its product lines, which are sold under the Green Smoke e-vapor brand, include both rechargeable and disposable versions. Green Smoke brings a team of talented employees with significant experience in developing, manufacturing and marketing high-quality e-cigarettes.
The agreement contains provisions to retain key management infrastructure and talent. Subject to closing conditions, Nu Mark anticipates that the transaction will be completed in the second quarter of 2014.
“We are very pleased to be joining the Altria family of companies,” said Robert Levitz, Green Smoke’s CEO. “We are dedicated to innovation and believe joining Nu Mark will help us deepen that expertise and create new opportunities for our customers, our employees and our products.”
Tobacco analyst Bonnie Herzog of Wells Fargo Securities, New York, said the acquisition is a positive for Altria.
“We have long believed companies would develop portfolios of e-cig brands that cater to different consumers,” she said in a research note today.
She also reported that the majority of Green Smoke's sales are online in the United States, though the company does have a small presence in convenience stores. According to Nielsen, Green Smoke's retail sales in c-stores for the past 52 weeks through the period ending Dec. 21, 2013, were $3.9MM for 0.8% share.
“Altria took a ‘deep scan’ of the entire e-vapor space and felt Green Smoke was the right fit at the right time,” Herzog said, enumerating several reasons, including:

• Green Smoke presents an opportunity for Philip Morris to develop a portfolio of e-vapor brands, complementing its existing MarkTen e-vapor product, as Green Smoke can reach a different consumer since it doesn't look like a traditional cig and it is bigger than MarkTen with a stronger battery.
• Altria can leverage its sales, distribution and infrastructure (Green Smoke has 140 employees, or 40 in the U.S., compared to Altria's 2,000 person sales force).
• Green Smoke's proprietary technology.
• Altria will likely include Green Smoke's technology in its technology and distribution sharing agreement with PMI as Green Smoke has minimal international distribution.

Altria Group directly or indirectly owns 100% of each of Philip Morris USA Inc, U.S. Smokeless Tobacco Co. LLC, John Middleton Co., Nu Mark, Ste. Michelle Wine Estates Ltd. and Philip Morris Capital Corp. Altria holds a continuing economic and voting interest in SABMiller plc. The brand portfolios of Altria’s tobacco operating companies include Marlboro, Black & Mild, Copenhagen, Skoal and MarkTen.