Juul e-cigarette company is effectively giving its investors free money as part of its agreement to sell 35 percent of the company to tobacco giant Altria.
To say this is unusual is an understatement
Juul pays its investors a dividend of $ 150 per share under the agreement. That means big Juul shareholders like Tiger Global Management get paid $ 1.6 billion in cash, a person said – money from the $ 12.8 billion that Juul adopted in return for the loss of 35 percent of the company had, is exceeded.
Investors like Tiger does not give up any shares for this payment Recode is told. Thus, they not only receive billions of dollars in advance, but they continue to hold on a business worth $ 38 billion of [1
It is estimated that Juul's total payout to investors exceeds $ 2 billion that he grants to his employees, such a close associate. Although Altria is pouring $ 12.8 billion into the company, less than $ 8.8 billion is actually finding its way into Juul's bottom line after investors and employees were paid.
Juul and Tiger Global declined to comment. Payments to employees and investors were first reported by CNBC and Bloomberg.
Dividends to shareholders are not uncommon in public stock markets, especially by conservative industrialists such as General Electric. They are usually given to increase the value of a stock because more investors want to own it if they are guaranteed regular payouts. Sometimes there will also be companies that are supported by private equity, pay dividends.
But dividend distributions of this magnitude to a venture-backed company when it is still privately owned? Venture capitalists say Recode that they have not seen that yet.
Payments to employees make some sense at least: some of Juul's 1,500 employees were reportedly displeased with selling to the manufacturer of Marlboro, as Juule's mission was to prevent people from using traditional cigarettes to smoke, and not to cooperate with their manufacturers.
In this sense, Juul decided to pay each employee something absurdly holiday bonus – an average of more than $ 1 million – to increase internal morale, according to a person close to the business. It's likely to be tied to a few retention clauses that keep Juul's talent from looking for other jobs.
What makes less sense for us is the dividend that is distributed to (already wealthy) venture capitalists. One person who was close to the deal said the billions of dollars for investors should reward the long-standing financial backers of Juul, who had to go through a tough fight against the Food and Drug Administration and other not-so-fun investigations. You have certainly taken a risk.
But again, these shareholders have already paid off the risk – the estimated value of their stock. That makes me think that this deal was not popular with investors right from the start.
But if we know something about Silicon Valley, billions of dollars can easily fade a bad taste.