The e-cigarette company Juul effectively provides money to investors and employees as part of the agreement to sell 35 percent of the company to Altria, the tobacco giant.
Saying this is unusual is an understatement.
Juul pays dividends of $ 150 per share to its investors as part of the event, according to people close to the agreement. That means that big Juul shareholders like Tiger Global Management will be paid $ 1.6 billion in cash, one person said – money coming from the top of the $ 12.8 billion that Juul accepted in exchange for losing 35 percent of the company .
Investors like Tiger does not give up any shares for this payment, Recode is told. So not only receive the billions of dollars in front, but they will still hold shares in a company now valued at $ 38 billion instead of of the $ 1[ads1]6 billion Juul was appreciated this summer.
Juul's total payment to investors is expected to exceed the $ 2 billion it allocates to its employees, according to a person close to the agreement. So, while Altria draws $ 12.8 billion into the company, it's less than $ 8.8 billion that finds its way to Juul's balance after investors and employees are paid.
Juul and Tiger Global refused to comment. Payments to employees and investors were first reported by CNBC and Bloomberg respectively.
Dividends to shareholders are not uncommon in the public stock markets, especially from conservative, old industry dancers like General Electric. They are usually assigned to increase the value of one stock, as more investors will want to own it if they are guaranteed fixed payments. You will sometimes see companies supported by private equity distributions as well.
But dividend-esque payments of this size to a venture-backed company when it is still privately held? Venture Capitalists tell Recode that they have not seen it before.
The payment to employees mak e some sense, at least: Some of Juul's 1500 employees were allegedly upset by agreement to sell to the manufacturer of Marlboro, given that Juul has the mission to lead people away from smoking traditional cigarettes, not to cooperate with their makers.
With that in mind, Juul decided to pay each employee something of an absurd holiday bonus – average out to more than $ 1 million each – to increase morale internally, according to a person close to the deal. It seems reasonable to assume that it will probably be linked to some retention clauses that keep Juul's talent from looking for other jobs.
What makes less sense to us is the dividend paid to (already wealthy) venture capitalists. A person near the agreement said that billions of dollars to investors are meant to reward Juul's long-term financial supporters who have had to lose a breakdown by the Food and Drug Administration and other not so charming surveys. They certainly took a risk.
But again: These shareholders already have the payment from the risk – valued value of the share. All of this makes me believe that this deal was not very popular with investors at first.
But if we know one thing about Silicon Valley, it's that billions of dollars can make a bad taste fade easy.