Altria to split up Philip Morris

Altria to split up Philip Morris
By Christopher Bowe in New York
Copyright The Financial Times Limited 2007
Published: August 29 2007 16:24 | Last updated: August 30 2007 00:25


Altria Group on Wednesday said it would split the international and domestic operations of Philip Morris, the world’s biggest cigarette maker, into separate public companies in a long-anticipated move.

The fast-growing international unit, Philip Morris International, will be spun off to shareholders, severing it from Philip Morris USA, which is suffering from falling US cigarette consumption. The spin-off is set for next year after a unanimous board vote. Timing will be given on January 30.

Louis Camilleri, Altria chief executive, will become chief executive of PMI, whose operations are based in Lausanne, Switzerland, but with a small headquarters office retained in New York. Altria will in effect become PMUSA, led by Michael Szymanczyk, and it will retain its 28.6 per cent stake in the brewer SABMiller.

The move will complete the break-up of the Altria conglomerate, highlighted by the closure of the New York headquarters, cutting about 400 parent company jobs with an estimated $250m in cost savings.

Altria has restructured, including a spin-off in March of Kraft, its US food unit, to boost value for shareholders as the US tobacco litigation threat receded.

The last step marking a milestone in the global tobacco industry was to restructure Philip Morris, which makes Marlboro, one of the world’s most recognisable brands, and PMUSA’s and PMI’s increasingly different business agendas. Mr Camilleri said: “I am convinced that this transaction will enhance growth at both Altria and Philip Morris International.”

A standalone PMI would be a fast-growing global contender. It has a 15.4 per cent share of the international cigarette market, but only 5 per cent of its profits come from emerging markets, which make up 60 per cent of international cigarette consumption. Its balance sheet would be strong and its stock would be robust currency to participate in rapid industry consolidation.

PMI, which accounts for almost three-quarters of the cigarette makers’ total revenue, has made recent acquisitions in Indonesia and Pakistan and eyed fast-growing Asian and eastern European cigarette markets.

Bonnie Herzog, analyst at Citigroup, said: “It’s at this point that we expect the beast to be unleashed...and shareholders will be rewarded.”

Separating PMI and PMUSA is likely to cheer Wall Street as it will free both groups to become more efficient. Altria shares were up by just over 1 per cent at $69.80 at the close.

Lehman Brothers and Centerview Partners advised Altria.