The origins of Altria’s AB Inbev stake.
In 1970, well-before changing its name to Altria in 2003, Philip Morris outbid Pepsi to acquire Miller Brewing Company (MBC) from specialty chemicals business W. R. Grace & Company. The acquisition gave Philip Morris a foothold in the global beer market.
Decades later in 2002, South African Breweries (SAB) bought MBC from Philip Morris. But Philip Morris held on to a large chunk of the newly-created beer conglomerate plus substantial voting rights.
Then, in 2016, Anheuser-Busch InBev bought SABMiller. Through its stake in SABMiller, Altria ended up with ownership of over 10% of the combined entity plus a couple of board seats. (Altria had to buy shares on the open market to get over the 10% stake threshold for tax reasons).
Altria has held on to its stake in AB InBev to this day and received billions of dollars in dividends as a result.
Food can be addictive too.
In the 1980s, Philip Morris bought General Foods and Kraft Foods, combining the two under the Kraft name. (PM also acquired Nabisco in 2000, consolidating it with Kraft).
Under Philip Morris’s ownership, Kraft food scientists formulated their food products to be somewhat addictive. The goal was to optimize the taste of their food products to maximize desire and keep consumers coming back to their products again and again. If you’re interested in this chapter of Altria’s past, I recommend reading Salt Sugar Fat: How the Food Giants Hooked Us by Michael Moss.
Philip Morris executives helped Kraft executives rescue products with struggling sales and grapple with public health concerns centered on Kraft’s contributions to obesity and heart disease. Philip Morris was, of course, around the same time also dealing with the public’s growing disdain toward tobacco products.
In 2008, Altria got out of the food business by spinning off Kraft.
Cigarillos.
In 2007, Altria acquired the maker of the very popular Black & Mild cigar brand, John Middleton Co. Altria still owns the company today.
Black & Mild holds around 30% market share in its category, and volumes have increased over 40% from 2009 to 2021.
Unchaining Philip Morris International.
In 2008, Altria spun off its international tobacco business, Philip Morris International (PMI). The spinoff freed the international unit from the legal and regulatory constraints imposed by U.S. federal and state governments, enabling it to focus on foreign markets.
Adding smokeless tobacco to the lineup.
In 2009, following the Kraft and PMI spinoffs, Altria acquired UST (owner of dip brands like Copenhagen and Skoal), adding smokeless oral nicotine to its roster of nicotine products.
Altria had announced plans to enter the dip market with its own Marlboro Snus offering in 2007. But it abandoned those plans after acquiring UST, whose Skoal and Copenhagen brands dominated the oral nicotine market.
The UST acquisition included a wine subsidiary which Altria sold in 2021.
UST’s portfolio of oral nicotine products remains an important part of Altria’s business today, accounting for ~15% of operating income. This segment of Altria’s business has grown its volumes and revenues by 27% and 91%, respectively, from 2009 to 2021.
Vaping: The next big thing.
In the first half of the 2010s, Altria jumped into the vaping business when it bought Green Smoke in 2014 through its Nu Mark subsidiary.
Altria’s vaping products — MarkTen and Green Smoke — were failures. MarkTen and Green Smoke managed to capture only 4% of the vaping market while Juul took 75%.
Thus, in 2018, mirroring its approach to the oral tobacco market almost a decade earlier with its acquisition of UST, Altria discontinued MarkTen and Green Smoke and took a 35% stake in Juul for $12.8 billion.
While Altria still holds that 35% stake today, the value of its investment has dropped 95%. And Juul’s market share has dropped from 75% to around 30% in 2022.
Today, Juul’s CEO and chief regulatory officer are former Altria executives. Juul is exploring the possibility of selling itself to Altria, PMI, and Japan Tobacco.
Dumping cigars. Keeping luxury cigarettes.
In 2017, Altria purchased Nat Sherman International, a luxury tobacco company focused on high-end cigarettes, cigars, and pipe tobacco.
When Altria declared in 2018 that it supported FDA regulation of all tobacco products, including premium cigars, the company drew criticism from the premium cigar industry (and its own Nat Sherman team) which had historically lobbied for more friendly regulation of premium cigars relative to that of cigarettes.
In 2019, Altria announced its intent to sell Nat Sherman International’s cigar business, but it could not find a buyer. So in 2021, it opted instead to sell a number of Nat Sherman’s cigar brands to a couple of Nat Sherman executives and discontinue the remaining pieces of the business.
Altria did, however, hold on to the Nat Sherman luxury cigarette brand (“Nat’s”) which it still sells today.
Marijuana.
In 2018, Altria bought 45% of Cronos, a Canadian cannabis company.
The deal gave Altria the option to take a controlling stake in the company in the future as well as immediate control of the board.
In 2022, Altria abandoned its option to take a majority stake in the company.
Today, Cronos holds an option to buy a 10+% stake in PharmaCann, a vertically integrated dispensary company with over 50 licensed retail locations across eight states.
Nicotine pouches.
In 2019, Altria bought 80% of nicotine pouch company “On!”
Nicotine pouches are an inconspicuous, spit- and smoke-free way of consuming nicotine. No smoke means that they’re probably much safer than cigarettes.
Nicotine pouches are also tobacco-free, making the product likely much less harmful compared to UST’s Skoal and Copenhagen oral tobacco products.
The nicotine pouch market in the U.S. grew 300 times between 2016 to 2021. There are over a million U.S. pouch users (compared to tens of million smokers).
Swedish Match’s Zyn product has dominated this market since 2016. Zyn holds about 60% market share while On! holds about 25%.
Altria bought the remaining 20% of On! in 2021, and PMI bought Swedish Match in 2022, setting up the pair to go head-to-head on Altria’s turf.
Thanks for reading!
Other pieces in this series on Altria: