[Intl-tobacco] Altria Seeks Ways to Split Into 3 Units - (Nov. 5)

[robert weissman]

This could be a very serious problem in terms of holding Philip Morris
accountable for its international operations.

New York Times
November 5, 2004
Altria Seeks Ways to Split Into 3 Units
By MELANIE WARNER

The chief executive of the Altria Group, Louis C. Camilleri, said
yesterday that the company might split into two or three independent
entities. Altria, which includes Philip Morris USA, Philip Morris
International, the Philip Morris Capital Corporation and Kraft Foods,
has been looking for a way to extract Kraft and Philip Morris
International from the American tobacco unit, which has been mired in
expensive litigation for years.

Speaking at the Morgan Stanley Global Consumer Conference in New York,
Mr. Camilleri said, "Looking at Altria's price-to-earnings multiple
excluding Kraft, you can see that our tobacco businesses are
significantly undervalued versus their tobacco peers."

The market responded positively to the news. Shares of Altria rose
$4.23, or 8.5 percent, to $54.23.

Analysts expect that the company will ultimately be separated into three
units, isolating the troubled Philip Morris USA business. Sales of this
unit have been declining; sales at Kraft Foods have been holding steady
while those at Philip Morris International have risen sharply.

While Philip Morris USA is still facing significant litigation, Mr.
Camilleri expressed optimism about the outcome of several large cases.
"We believe that the long-term trend in tobacco litigation is one of
improvement," said Mr. Camilleri, Altria's chief since April 2002.

Some analysts noted the timing of the announcement, two days after the
presidential and Congressional elections. An analyst at Merrill Lynch,
Martin Feldman, sees the victory of the Bush administration, which has
not been shy about expressing disdain for trial lawyers and excessive
litigation, as a potential boon to Altria's litigation woes.

"Bush and the Republicans under his administration have given tobacco an
easy ride," Mr. Feldman said.

He also pointed to the successful election of Lloyd Karmeier, a
Republican who ran for a seat on the Illinois Supreme Court. Altria is
set to argue an appeal before that court, in hopes of reversing a order
to pay damages of $10 billion and post a $7 billion bond. In March 2003,
the company lost a lawsuit which claimed that the use of the word
"light" in cigarette marketing was misleading and violated Illinois
consumer laws.

"The election of Justice Karmeier to the Supreme Court may have an
incrementally beneficial impact on PMUSA's appeal in the Price 'Lights'
class action," Mr. Feldman wrote.

A breakup is something observers have talked about for more than a year
and yesterday Mr. Camilleri offered no promises or timeline, saying that
any restructuring was dependent on "continuing improvements in the
litigation environment."

Analysts applauded his comments partly because they said they thought
Kraft Foods would be able to operate more efficiently on its own.

"It would give Kraft more M.& A. opportunity in terms of having a
currency they can use to make acquisitions," said David Adelman, a
Morgan Stanley analyst.