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Altria is taking a stake in the global business of Swiss tobacco company Burger Sohne for $372 million, the companies said Monday.
As part of the deal, Altria will provide global distribution for Burger Sohne's oral nicotine pouch business called On — kind of like chewing tobacco without the tobacco — as the maker of Marlboro cigarettes further expands its portfolio beyond cigarettes. The deal gives Altria an 80% interest in On.
Once the all-cash transaction closes in the second half of the year, Burger Sohne's businesses will become part of Altria's newly formed subsidiary Helix Innovations.
On contains a nicotine powder derived from tobacco but without the plant's leaves. The oral pouch category grew to $60 million last year, a 250% increase from the previous year, according to data from market research firm IRI.
The deal marks Altria's latest attempt to diversify as its signature cigarette business shrinks. Altria in December invested in cannabis through Cronos and took a stake in market leading e-cigarette company Juul. It will soon start selling iQOS, a heated tobacco product, through an agreement with Philip Morris International.
Sales of cigarettes are falling faster than expected, prompting Altria to pursue new avenues for growth.
"This acquisition will add another non-combustible product to our portfolio in what we believe is a high-potential, rapidly-developing oral products category," Altria CEO Howard Willard said in a statement.
Altria said On was introduced before Aug. 8, 2016, the deadline for new tobacco products to enter the market without first receiving the FDA's permission. The brand's products currently available in "several thousand" stores in the U.S. in addition to Sweden, Japan and online.
On's seven flavors include coffee, berry and citrus, possibly opening them up to regulatory scrutiny. The Food and Drug Administration has said kid-appealing fruity flavors contributed to a teen vaping "epidemic" and proposed limiting their sale to age-restricted stores like vape shops.
Altria spokesman David Sutton said in an email that the company has "no data" suggesting minors are accessing the products but it's "committed to preventing kids from using any nicotine-containing products."
"In our preliminary qualitative research, the portfolio of various flavors and strengths is a compelling proposition to adult tobacco consumers as they search to find the flavors and strengths that are right for them," he said. "We are assessing the portfolio and will share expansion plans soon."
Correction: This article was updated to clarify Altria's investment stake. A company press release said Altria's investment gives it an 80% stake in Burger Sohne's global business. However, a spokesman later said the investment gives Altria an 80% stake in On.