Mergers & acquisitions never stop coming from different industries, and the latest one is from the tobacco & cigarette products sector. Altria (NYSE: MO), a tobacco giant best known for its Marlboro brand of cigarettes, has struck a deal to acquire Njoy, a startup that makes electronic cigarettes, or vapes.

• Altria will pay $2.75bn in cash outright to buy Njoy. It will also pay an additional $500mn if Njoy meets certain regulatory milestones.

This is not Altria’s first major bet on electronic cigarettes. In 2018, the tobacco giant invested a whopping $12.8bn for a 35% stake in Juul Labs, a leading vape maker. However, that investment proved disastrous, as Juul faced thousands of lawsuits in the ensuing years that deflated the sale of its products.

Alongside its Njoy acquisition, Altria also announced that it’s swapping its Juul shares for some intellectual property (IP) from the embattled company. Altria estimated the value of its shares at $250 million at the end of 2022, or about 2% of what it paid for it in 2018. You can mark this as one of the most ill-fated investments in corporate history.

When Altria invested $12.8bn in Juul in 2018, most of the money went to bonuses and special dividends to shareholders. The major shareholders made out big; Riaz Valani, founder of Global Asset Capital, got $2.6bn; heir Nick Pritzker got $1.7bn; and co-founders Adam Bowen and James Monsees got $650mn each, according to The Devil’s Playbook: Big Tobacco, Juul, and the Addiction of a New Generation, a book authored by Bloomberg reporter Lauren Etter. A widely reported $2bn bonus was also distributed to 1,500 employees.

• By offloading its Juul stake, Altria is signaling that it has found a better partner in the vaping market in Njoy. This startup has a considerably smaller market share than Juul, but notably has six products that have received full approval from the U.S. Food and Drug Administration (FDA). Juul, on the other hand, is still seeking approval and could see its products banned nationwide as happened briefly in 2022.

Njoy has had its own share of headwinds. In 2016, it filed for bankruptcy amid financial woes but was rescued a year later by investment firm Mudrick Capital Management. Mudrick has retained a majority stake and will be the biggest beneficiary from this acquisition.

• Sales of tobacco and cigarette products have declined sharply over the past two decades. As bleak as it sounds, Altria is hoping to capture a new market to make up for those declining sales, and the growing vaping market presents that opportunity.

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