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US: Altria to spin off foreign cigarette unit March 28

Move could provide shield from U.S. legal, regulatory and public relations hassles

by Vinnee TongAssociated Press
January 31st, 2008

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 Platinum.

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 2006.

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. consumers.

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 cigarettes.

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 Mint.

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 December.

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.




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