Thursday January 31, 08:46 AM
Marlboro Man in Lausanne -- Altria dodges US legal bullet
By Laurence Benhamou
NEW YORK (AFP) - Altria, the world's leading tobacco company, is spinning off its Switzerland-based unit so it will be able to sell internationally beyond the reach of US anti-tobacco lawsuits.
Altria said Wednesday it plans to sell Philip Morris International to shareholders, with the spinoff taking effect on March 28.
The New York-based Altria, maker of Marlboro and a raft of other cigarette brands, had announced the spinoff of PMI, a much more dynamic unit than its mature domestic business, as an independent entity in August.
The new group, based in the Swiss city of Lausanne, would be free from litigation and public relations problems in the United States over tobacco marketing.
The announcement of the details of the spinoff cheered financial markets but outraged anti-tobacco groups, which accuse Altria of seeking to shelter itself from lawsuits and potentially more-restrictive tobacco laws in its home market.
The ratings agencies Moody's and Standard & Poor's underscored the financial advantages of the spinoff for the new independent PMI.
"The strong, predictable and highly profitable cash flows of Altria's US franchise are offset by the still unpredictable US litigation environment," said Moody's vice president, Janice Hofferber.
Standard & Poor's said Altria's leading market position in the mature US market was "offset somewhat by the company's exposure to US litigation risk, and its participation in the highly competitive and declining US cigarette market."
By contrast, PMI, which generated two-thirds of the group's operating profit last year, has a "defendable competitive position within the large, growing, and highly profitable global cigarette market," it said.
S&P citing the unit's "positive operating performance, its broad geographic breadth, and its demonstrated ability to generate significant levels of cash flow."
Shares in Altria closed off earlier highs, up 0.50 percent at 76.50 dollars, in a broad market retreat.
The PMI spinoff is part of a restructuring program begun last year that included the sale of Kraft Foods (NYSE: KFT - news) in March to focus on its more lucrative core tobacco activities.
The PMI move has drawn criticism from Essential Action, a corporate accountability organization based in Washington, which is working with groups in 70 countries, asking governments to mitigate the negative health effects it sees in the sale.
"The breakup of Philip Morris will unleash a Philip Morris International that will be even more predatory in pushing its toxic products worldwide," said Robert Weissman, director of Essential Action.
"An independent Philip Morris International ... will no longer feel constrained by public opinion in its home country and most important market, the United States," he added.
Anna White of Essential Action pointed to a recent case in which a US judge ordered tobacco companies to stop using misleading terms like "light" and "mild" to describe their products.
"If an independent PMI had no connection to the United States, the judge would not have been able to issue this order," she said.
White cited a World Health Organization estimate that projects that 10 million people will die annually from tobacco-related disease by 2030, 70 percent in developing countries.
"We must work to lessen this toll, not allow an independent Philip Morris to make it worse," she said.
Altria also announced Wednesday a decline in earnings.
The 2007 full-year profit was 9.78 billion dollars, down 18.6 percent from 2006, on a rise in global sales excluding tax to 37.6 billion dollars.
International sales jumped by 9.6 percent but sales in the United States edge up only 1.2 percent, and declined 4.6 percent in volume.
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