Juul Discusses a Possible Bailout With Two of Its Biggest Investors

Date:

Vaping company explores investment from directors Nick Pritzker and Riaz Valani that would avoid a bankruptcy filing

Juul Labs Inc. is in talks with two of its biggest investors on a bailout that could help the e-cigarette maker stave off a bankruptcy filing, according to people familiar with the matter.

Hyatt Hotels heir Nick Pritzker and California investor Riaz Valani are considering putting up money to cover the vaping company’s operations and near-term legal liabilities, the people said. Messrs. Pritzker and Valani were early investors in Juul, have been longtime directors and are among the company’s largest shareholders.

The goal of the bailout would be to put Juul on firmer financial footing so it can stay in business and pursue a dispute with federal regulators over whether its products can remain on the U.S. market, one of the people said. Terms on the investment couldn’t be learned.

The deal hasn’t been finalized and Juul could decide not to pursue it. The company also has been preparing for a potential chapter 11 filing and recently added two restructuring experts to its board. Mr. Pritzker declined to comment and Mr. Valani didn’t respond to a request for comment.

Mr. Valani and Mr. Pritzker were Juul’s largest shareholders before Altria Group Inc. MO -2.82%decrease; red down pointing triangle in 2018 bought a 35% stake in the company for $12.8 billion, the people said. Almost all of that cash was paid out in employee bonuses and shareholder dividends, including more than $2 billion to Mr. Valani and more than $1 billion to Mr. Pritzker, the people said.

The Food and Drug Administration in June ordered Juul’s products off the market, then paused the ban pending Juul’s appeal. Since then, the company’s sales have slowed. It faces thousands of lawsuits alleging that it marketed to children and teenagers. The first trial—a case brought by the San Francisco Unified School District—is set to begin next month. Other cases are set to go to trial next year. Juul has said it never targeted underage users.

The uncertainty around the FDA ban has made it difficult for Juul to secure financing for legal settlements. Juul has been searching for an alternative—such as a sale, investment or loan—that could avoid a bankruptcy filing. Earlier this month, Juul began discussions with lenders for financing that would carry the company through a potential chapter 11 filing.

Juul was deep in preparations for a bankruptcy filing when serious conversations started earlier this month on a potential investment from Messrs. Valani and Pritzker, one of the people said.

In a statement on Monday, Juul said it continues to explore several strategic options to secure its business and address the impact of the FDA’s stayed order “as we fight to preserve our mission of transitioning adult smokers away from cigarettes while combating underage use.”

Mr. Pritzker, 77, is a member of a wealthy Chicago family that built Hyatt Hotels Corp. -2.07%decrease; red down pointing triangle and sold the Conwood smokeless-tobacco company to Reynolds American Inc. in 2006 for $3.5 billion. He previously served as vice-chairman of Hyatt Hotels Corp. and president of Hyatt Development Corp., overseeing hotel development projects.

Mr. Valani, 46, worked at brokerage firms in New York before starting an investment firm in San Francisco that invested in tech companies. He was the second venture capitalist to invest in Juul. He is a general partner at Global Asset Capital LLC.

Read full article here.

Jennifer Maloney – Wall Street Journal – 2022-10-24.

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