US: Altria to spin off foreign cigarette unit March 28

Move could provide shield from U.S. legal, regulatory and public relations hassles
Publisher Name: 
Associated Press
When Altria's
international cigarette unit gets its independence in March, it will
move quickly to grab sales outside the United States with products
like Marlboro Fresh Mint, Virginia Slims Noire and Parliament

Altria Group Inc. said Wednesday it would spin off its international
tobacco business on March 28, freeing it to pursue cigarette sales
more aggressively without ties to its U.S. counterpart - and U.S.
regulatory oversight.

The details of the spin-off, tentatively approved by the Altria board
last August, were announced as the company reported that
fourth-quarter profit fell 26 percent from a year earlier, when
results were boosted by cost savings from its reorganization in

Philip Morris International, based in Lausanne, Switzerland, has said
that it would rank as the biggest nongovernmental cigarette-maker in
the world, behind the state-owned China National Tobacco. PMI also
makes L&M and Bond Street cigarettes, while Philip Morris USA
makes the Virginia Slims, Parliament and Basic brands for U.S.

The separation could shield Philip Morris International from U.S.
legal and public relations issues, such as pressure by anti-smoking
groups to curb sales in developing countries and a U.S. court decision
in the so-called Kessler case that says PMI cannot use the
"light" and "low-tar" labels to market

U.S. District Judge Gladys Kessler ruled that the restriction would
apply to PMI, but enforcement of her decision is on hold as the case
is appealed.

Critics of the spin-off say it gives the international unit the chance
to unleash its marketing on nonsmoking women and children in poor,
developing countries.

"Unless the predatory practices of this industry are stopped, we
face an epidemic almost unlike any we've dealt with before," said
Damon Moglen, vice president for international programs at the
Campaign for Tobacco-Free Kids. "They're selling products at very
low prices with all the marketing campaigns that were used and
discredited here."

Moglen said the tobacco companies have targeted emerging economies in
Eastern Europe, Latin America and especially Asia as consumers with
more discretionary income take up smoking.

Philip Morris International, which has operations in 160 countries,
has a slew of tobacco products ready to take advantage of growth in
emerging markets. It is selling the shorter Marlboro Intense in
Turkey; a clove-based cigarette called Marlboro Mix 9 in Indonesia;
Marlboro Filter Plus in South Korea, Russia, Kazakhstan, Romania and
Ukraine; and the thicker Marlboro Wides in Switzerland, Germany,
Sweden, France, Japan and Mexico.

In Hong Kong, it is selling Marlboro Fresh Mint and Marlboro Crisp

Once the spin-off to Altria shareholders is complete, New York's
Altria Group Inc. will consist mainly of its domestic cigarette
business, Philip Morris USA, and a 28.6 percent stake in SABMiller,
which makes Miller Lite and Pilsner Urquell beers. Altria plans to
shut down its New York headquarters and move to Richmond, Va., where
Philip Morris USA is based.

Philip Morris USA faces declining cigarette consumption, with
cigarette shipment volume down 3.6 percent in 2007. The company has
adopted a strategy of promoting more smokeless products, such as
chewing tobacco. It also bought cigar maker John Middleton Inc. in

In its earnings report, Altria said fourth-quarter profit fell to
$2.19 billion ($1.03 per share) from $2.96 billion ($1.40) a year
earlier. Revenue rose 14 percent to $18.23 billion from $16.03 billion
the previous year.

For the year, Altria
earned $9.79 billion ($4.62), down from $12.02 billion ($5.71) in
2006. Annual revenue rose 10.1 percent to $73.8 billion from $67.1
billion the year before.
AMP Section Name:Tobacco
  • 182 Health
  • 208 Regulation