[Intl-tobacco] China-Marlboro deal

[Robert Weissman]

This certainly ranks as one of the most important tobacco stories of the
year.

1. Reuters story
2. Philip Morris Intl news release

Marlboros to be made legally in China under pact
Wed Dec 21, 2005 11:39 AM ET

By Brad Dorfman

CHICAGO, Dec 21 (Reuters) - Marlboro cigarettes will be produced legally
for the first time in China, the world's largest cigarette market, under
an agreement announced on Wednesday between tobacco company Philip
Morris International and China's state run tobacco company.

Under the agreement, Philip Morris, a unit of Altria Group Inc. (MO.N:
Quote
<http://www.investor.reuters.com/FullQuote.aspx?ticker=MO.N&target=%2fstocks%2fquickinfo%2ffullquote>,
Profile
<http://www.investor.reuters.com/StockOverview.aspx?ticker=MO.N&target=%2fstocks%2fquickinfo%2fstockoverview>,
Research
<http://www.investor.reuters.com/StockReports.aspx?ticker=MO.N>) , and a
China National Tobacco Corp. unit will also form a joint venture to
offer Chinese cigarette brands globally and export tobacco products and
tobacco materials from China.

A small quantity of Marlboro cigarettes have been imported legally into
China in recent years. But like other signature U.S. brands, counterfeit
Marlboros have been a fixture in China.

The 10-year agreement grants a license for the cigarettes to be made
legally in China.

"Investors have been waiting for concrete signs that Philip Morris is
getting into China and today's announcement is strong evidence of this,"
Bonnie Herzog, analyst at Citigroup, said in a research note. Herzog,
who rates Altria "buy," said China National controls 90 percent to 97
percent of the Chinese tobacco market.

China National sold 1.87 trillion cigarettes in 2004. Philip Morris
International shipped 761.4 billion cigarettes in 2004.

The companies expect the production of Marlboro in China and the sale of
Chinese brands by the joint venture to begin in 2006. Neither expects
the deal to materially impact financial results immediately.

The joint venture will be 50 percent owned by Philip Morris
International and 50 percent owned by China National Tobacco Import and
Export Group Corp., a unit of China National.

Altria shares were up 8 cents at $76.14 on Wednesday on the New York
Stock Exchange.

---

*Press Release* 	Source: Philip Morris International

The China National Tobacco Corporation and Philip Morris International
Announce the Establishment of a Long-Term Strategic Cooperative Partnership
Wednesday December 21, 4:58 am ET

Agreements Provide for the Licensed Manufacture and Sale of Marlboro
Cigarettes in China and Establishment of an International Equity Joint
Venture Company in Switzerland

BEIJING--(BUSINESS WIRE)--Dec. 21, 2005--The China National Tobacco
Corporation (CNTC) and Philip Morris International (PMI), an
international operating company of Altria Group, Inc., (NYSE:MO
<http://finance.yahoo.com/q?s=mo&d=t> - News
<http://finance.yahoo.com/q/h?s=mo>), have reached agreement on the
licensed production in China of PMI's Marlboro brand and the
establishment of an international equity joint venture between China
National Tobacco Import and Export Group Corporation (CNTIEGC), a wholly
owned subsidiary of CNTC, and PMI. The signing of the two agreements
today at the Diaoyutai State Guesthouse in Beijing symbolizes a
substantial step forward taken by the parties in establishing a
long-term strategic cooperative partnership.

In accordance with relevant provisions of the Law of the People's
Republic of China on Tobacco Monopoly, Marlboro, owned by PMI, will be
produced under license at CNTC's affiliate factories, and will be
distributed by CNTC's official distributors nationwide in China.

The international joint venture company to be established by CNTIEGC and
PMI, in which each party will hold 50% of the shares of the company,
will be based in Lausanne, Switzerland. Following its establishment,
this joint venture company will offer consumers a comprehensive
portfolio of Chinese heritage brands globally, expand the export of
tobacco products and tobacco materials from China, and explore other
business development opportunities. The joint venture company will
utilize both CNTC's and PMI's extensive sales and distribution
infrastructure, financial resources and management experiences to
develop business opportunities worldwide.

"The agreements signed today with PMI will allow us to exert our
strengths and create significant opportunities for sustained long-term
mutual growth and commercial success on a global scale", said Li Keming,
Deputy Chief Administrator of the State Tobacco Monopoly Administration.

"Our objective for cooperation with CNTC is to build a long-term global
strategic partnership and the signing of these two agreements today
constitutes an important and meaningful step in that direction", said
Andre Calantzopoulos, Chief Executive Officer of PMI. "As soon as we
have received the necessary worldwide regulatory approvals, we look
forward to realizing the unique promise offered by this partnership over
time."

It is expected by the parties that the production and sale of Marlboro
cigarettes under license in China and the sale of Chinese style brands
in selected international markets through the joint venture company will
commence in the first half of 2006. Both CNTC and PMI anticipate that
these agreements will not result in a material impact on their immediate
financial results.

China National Tobacco Corporation

The China National Tobacco Corporation (CNTC) was founded in 1982. As of
the end of 2004, it had 33 provincial tobacco companies, 17 tobacco
industrial companies, 57 cigarettes industrial enterprises, over 1,000
commercial enterprises, and national companies specializing in leaf
tobacco, cigarette sales, tobacco machinery, materials, import and
export, as well as other institutions. More information is available at
www.tobacco.gov.cn <http://www.tobacco.gov.cn>

2004 Results

Production volume                                  1,874 billion units
Sales volume                                       1,878 billion units
Industrial and commercial taxes and profits        RMB210 billion

Philip Morris International Inc.

Philip Morris International Inc., with business headquarters in
Lausanne, Switzerland, held a 14.5% share of the international cigarette
market in 2004. Its brands, led by Marlboro and L&M, are sold in over
160 countries around the world. PMI is an operating company of Altria
Group, Inc. More information is available at
www.philipmorrisinternational.com
<http://www.philipmorrisinternational.com>.

2004 Results

Net revenues                                        USD $ 39.5 billion
Operating companies income                         USD $   6.6 billion
Unit volume                                              761.4 billion
Worldwide market share                                           14.5%