E-cigarette maker Juul Labs has reportedly been holding informal discussions about funding a potential Chapter 11 bankruptcy.
According to sources cited by Bloomberg, the company has started talks about so-called debtor-in-possession financing. Formal conversations with potential lenders are scheduled to begin in the coming days, as well.
“We will continue the preparation process for both a restructuring and other strategic options as we determine what path is best for our company,” the company spokesman told Bloomberg when asked, adding that the preparations aren’t final, and plans could still change.
The e-cigarette maker, which Altria (NYSE: MO) owns a 35% stake in, encountered a kerfuffle with the US Food and Drug Administration after the latter ordered it to remove its e-cigarettes from the US market back in June 2022. The agency cited lack of evidence demonstrating their overall safety.
Since then, the company has been considering bankruptcy, retaining bankruptcy counsel Kirkland & Ellis and Alvarez & Marsal, as well as exploring various financing options.
Juul obtained a court order temporarily halting the FDA ruling, and the agency separately suspended its prohibition, enabling it to continue selling products.
Altria initially invested $12.8 billion in the company for a 35% stake, valuing the company at $38 billion. However, the value of that position was reduced to $4.2 billion a few years later, in 2020, after the FDA targeted the corporation.
However, the fair value as of the most recent financial statements is now valued at around $1.7 billion due to a slew of lawsuits filed against the company. As of December 31, Altria and Juul were identified as defendants in 53 class action lawsuits involving e-cigarette products, 2,851 individual claims, and 483 third-party cases. This does not include 17 putative class action lawsuits or shareholder class action lawsuits linked to the company’s 35% ownership in Juul.
It has agreed to settle some of those claims for more than $500 million, including a preliminary agreement with 33 states to end a two-year bipartisan investigation of its marketing and sales tactics.
Altria last traded at $42.50 on the NYSE.
Information for this briefing was found via Bloomberg and the sources mentioned. The author has no securities or affiliations related to these organizations. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.