Juul boss exits in vaping crisis as Philip Morris, Altria end merger talks

(Reuters) – The chief executive of e-cigarette maker Juul stepped down on Wednesday, with his company beset by a regulatory backlash against vaping, and merger talks between its biggest investor Altria and Philip Morris collapsed.

Juul, in which tobacco giant Altria Group (MO.N) owns a 35% stake, is facing intense scrutiny in its home market as teen use of e-cigarettes surges. The company, which faces a U.S. ban on some products, said on Wednesday that it would suspend all advertising in the country.

Philip Morris International (PM.N) and Altria, announcing the end of their talks, said they would instead focus on the joint launch of tobacco-heating product iQOS in the United States.

The iQOS, which heats but does not burn tobacco, is a rival non-smoking technology to typical vaping devices such as Juul’s, which vaporize liquid containing nicotine and have borne the brunt of the regulatory crackdown globally.

“After much deliberation, the companies have agreed to focus on launching iQOS in the U.S. as part of their mutual interest to achieve a smoke-free future,” Philip Morris CEO André Calantzopoulos said.

When the talks were announced last month, the potential for Juul and iQOS to dominate the biggest vaping markets globally was seen as central to the logic of a deal, which would have seen the tobacco companies reunite a decade after their split and created an industry heavyweight.

However, investors were skeptical of the synergies the deal would generate and a steady rise in number of vaping-related deaths and illnesses reported in the United States may also have changed the companies’ thinking.

Wells Fargo analyst Bonnie Herzog said she was not surprised that the talks were abandoned, given the litany of negative health headlines.

“It appears to us the talks fell apart over Juul,” she wrote in a note.

AMERICAN & INDIAN BANS

The Trump administration in the United States has announced plans to remove all flavored e-cigarettes from store shelves due to the spike in the number of vaping-related illnesses.

The U.S. Food and Drug Administration earlier this month warned Juul about marketing its products as safer than traditional cigarettes and requested more documents and information within 30 days.

Last week, South Korea and India became the latest countries after Brazil and Thailand to ban or warn about the sale of e-cigarettes, dealing further blows to the still-young industry.

Factbox on global backlash:

Separately, Juul said it was replacing Burns with K.C. Crosthwaite, a long-time Philip Morris USA veteran and most recently the Chief Strategy and Growth Officer of Altria, potentially a sign Altria wants to force change at the company.

Shares of Philip Morris rose 6% in morning trading, while those of Altria were marginally down.

Rivals British American Tobacco (BATS.L) and Imperial Brands (IMB.L) rose between 2% as 3% in afternoon trading on Wednesday’s announcements.