Loews to spin off Lorillard
The future of the U.S. tobacco industry came into sharper focus Monday when Loews Corp. said it would spin off its Lorillard cigarette subsidiary, positioning the maker of Newport, Kent and True brands to compete with rivals that are aggressively looking to replace cigarettes as a source of revenue.
As American smokers buy fewer cigarettes, tobacco companies have started to look for alternatives such as cigars, chewing tobacco and snus, which are tea bag-like tobacco pouches placed between a cheek and gums and are popular in parts of Europe. An independent Lorillard could take on debt to pursue acquisitions or develop such alternatives on its own.
A spinoff of the tobacco business could remove some legal risk and boost the market value of New York-based Loews, which is led by the Tisch family and also owns Loews Hotels, watchmaker Bulova Corp., CNA Financial Corp. and Diamond Offshore Drilling Inc. Consumers have pulled back on buying cigarettes due to health concerns, smoking bans and higher taxes.
Altria Group Inc., owner of the nation’s largest cigarette maker, plans Jan. 30 to announce the exact timing of when it will split Philip Morris USA and Lausanne, Switzerland-based Philip Morris International, creating two separate publicly traded tobacco companies.
In its efforts to replace cigarettes, Richmond, Va.-based Philip Morris USA completed its purchase of cigar maker John Middleton Inc. last week and started market tests this year of Marlboro-branded snus in the Dallas-Fort Worth area and Marlboro-branded chewing tobacco in Atlanta.
Reynolds American Inc., the nation’s second-largest tobacco company, bought smokeless tobacco company Conwood Co. in 2006 and has seen strong results from the Grizzly brand moist snuff. R.J. Reynolds Tobacco Co., which is Reynolds American’s largest subsidiary, is also conducting market tests on a Camel-branded snus product.
Lorillard will soon begin test marketing its own snus, under the brand Triumph, Loews executives said Monday. The Triumph test product is part of a joint venture formed in October 2006 with Swedish Match North America Inc. to develop smokeless tobacco products.
After the spinoff, expected by mid-2008, Lorillard’s headquarters will remain in Greensboro, N.C., and Martin Orlowsky will remain president, chairman and chief executive of the tobacco business.
Loews shares rose $1.14, or 2.4%, to $47.94 on Monday despite a statement from Moody’s Investors Service that noted the spinoff would reduce the number of ways Loews makes money and leave Loews without Lorillard’s steady flow of dividends.
