- MO pays $2.75 billion for NJOY, plus will possibly pay an additional $500 million if certain PMTA's are received for additional NJOY products.

 - NJOY currently has a 3% market share in the US. MO sees it with similar customer satisfaction scores as BAT's VUSE product, which currently has the highest market share in e-vapor with 35%. NJOY currently is only sold in about 1/4 of the stores that VUSE is. MO's first action would obviously be to expand that reach.

 - 85% of NJOY's sales come from their NJOY Ace product line, which is the only pod based product in the US with a current PMTA. VUSE also has approved PMTA's, but not for their pod product yet.

 - MO expects that NJOY will be negative to their cash flow for two years and positive thereafter. They expect it will negative to EPS for three years and positive thereafter. The year difference is amortization expense from the purchase.

 - No specific date estimated for closing on the NJOY purchase, but MO does expect to obtain government approval & will apply within 40 days. 

 - The JUUL disposal allows MO to recognize the capital loss for income tax purposes. The loss is $12.5 billion, which is the $12.8 billion paid less approx. $300 million for the value of the IP licenses received.

 - MO wouldn't comment on what they intend to do with the BUD stake, but it's pretty clear that they will probably need to use BUD's built in capital gain to be able to use up the huge $12.5 billion JUUL loss before it expires in 5 years.

 - MO estimates that e-vapor will grow in the US at low single digit rates for the next 10 years. They believe with store expansion and their sales team, NJOY can be competitive with VUSE and JUUL as well as other smaller players.

 

Once again, it seems to me that MO does not really believe that RRP's are going to take significant share in the US for the next decade, as evidenced by their pretty tepid anticipation of e-vapor growth. That may be because they think that significant numbers of US customers just don't like offerings, it may be because the risk of the products versus cigarettes is so muddled in the customer's mind, or because the FDA and tax policy will severely limit and restrict approval or widespread adoption of any new products. It seems their strategy is therefore to keep selling Marlboro's for as long as possible, but at least obtain IP in the various RRP categories to compete.

 

As I've said before, if they are right about that slow conversion away from cigarettes in the US, then MO is still sitting okay. But if they aren't correct, and RRP's grow much faster over the next decade, then they are in significant trouble. Simply put, they do have the A+ cigarette product in Marlboro, but they essentially have C- products in all the RRP categories.

1) In modern oral, PM's ZYN has over a 70% US market share versus MO's "on!" with a little over 20%, despite ZYN being sold at premium prices with "on!" is still heavily discounted.

2) In e-vapor, NJOY obviously starts out very small and there is really very little product differentiation with VUSE or JUUL or other e-vapor products. Even if they are successful in significantly expanding it, there seems little likelihood it would become a category dominant brand with premium pricing.

3) In heated tobacco, their Ploom brand (in their joint venture with Japan Tobacco) is still years away from being available in the US, and already is a distant third in nearly all foreign markets, being totally outclassed in technology and customer satisfaction by IQOS.