| | Tribune | |
By John Schmeltzer Tribune staff reporter
November 4, 2004, 3:51 PM CST
Northfield-based Kraft Foods Inc., which was merged 16 years ago in a hostile
takeover, may soon be an independent company again
The chief executive of Altria Group Inc., formerly known as Philip Morris Cos. Inc., said today that the consumer products giant has begun preparing for a possible breakup into two or even three separate companies.
"Although the precise timing and chronology of events remain uncertain, I can assure you that we are working on a myriad of activities in anticipation of a potential breakup," said Louis Camilleri, chairman and chief executive of New York-based Altria.
He said the company's "tobacco businesses are significantly undervalued" compared to its competitors.
Shares of Altria rose 8 percent to $54.02 after Camilleri's remarks began circulating among Wall Street traders. The shares closed at $54.23 on the New York Stock Exchange.
Shares of Kraft, however, only rose about 3 percent to $34.52 on the news.
Kraft is 80 percent owned by Altria. Analysts expect Altria will consider spinning off its remaining interest in Kraft, the largest U.S. food company and the maker of Oscar Mayer meats and Oreo cookies.
The company also could split its two tobacco businesses, Philip Morris USA and Philip Morris International.
"Our overriding objective is to deliver superior returns to our shareholders, and towards that end, we are working to res! olve the litigation issues at PM USA and beginning the necessary preparations for a potential breakup once the litigation environment permits," he said.
Kraft and Philip Morris merged in 1988 after a two-week takeover battle. The tobacco company paid $13.1 billion for Kraft stock, creating what was then the world`s largest consumer goods company.
Last year, Camilleri hinted that Altria's board would consider a breakup of the company once litigation was resolved. Today he suggested that three big cases would wrap up by next summer.
On Nov. 10 the Illinois Supreme Court will hear arguments in a conviction against Philip Morris that called for $10 billion in damages. A Madison County judge ruled that the company fraudulently suggested that Marlboro Lights and Cambridge Lights were less dangerous than regular cigarettes.
On Wednesday, the Florida Supreme Court heard arguments appealing a $145 billion judgment against the company. And this month cigarette make! rs will go before a federal appellate court to try to stop the Department of Justice from seizing $280 billion in profits in the government's racketeering case.
Tribune wire
services contributed to this report.
Copyright © 2004, Chicago Tribune
By John Schmeltzer Tribune staff reporter
November 5, 2004
Kraft Foods Inc., which was acquired 16 years ago in a hostile takeover by
cigarette giant Philip Morris Cos., soon may be an independent company again.
The chief executive of Altria Group Inc., as the combined companies are now
known, said Thursday that the consumer products behemoth has begun preparing
itself for a possible split into two or three separate companies as early as the
middle of 2005.
"Although the precise timing and chronology of events remain uncertain, I can
assure you that we are working ... in anticipation of a potential breakup,"
Louis C. Camilleri, chairman and chief executive of Altria, told investors at a
Morgan Stanley conference in New York.
Camilleri said the company's "tobacco businesses are significantly undervalued!
" when compared with its competitors.
Such a breakup also would get a nagging monkey off Kraft's back. Though Altria
spun off 15 percent of Kraft two years ago, analysts believe the
Northfield-based food giant remains undervalued in part because of its
relationship with Altria, which faces billions of dollars worth of
tobacco-related lawsuits.
Fears that Kraft could be on the hook in the event of a huge judgment in one or
more of the cases have dogged the company's stock, analysts say.
"People have not been willing to buy in to Kraft because of the potential legal
liabilities," said Mark Hugh Sam, a stock analyst with Chicago-based Morningstar
Inc.
Following Camilleri's remarks, shares of Altria rose more than 8 percent, to
close at $54.23 on the New York Stock Exchange. Shares of Kraft, however, rose
only a little more than 3 percent, to close at $34.52, on the news.
That's a far cry from what many analysts believe Altria's value is if it were s!
plit up.
Goldman Sachs analyst Judy Hong, in a note to investors, wrote that Altria
shares would be worth $75 to $80 if it were split into Kraft, Philip Morris USA
and Philip Morris International.
Camilleri said Altria's "overriding objective is to deliver superior returns to
our shareholders, and, towards that end, we are working to resolve the
litigation issues at [Philip Morris USA] and beginning the necessary
preparations for a potential breakup once the litigation environment permits."
He did not provide details about how the breakup might occur.
A spokeswoman for Kraft declined to comment on Camilleri's remarks.
At the time Philip Morris acquired Kraft in 1988, the $13.1 billion purchase was
the largest non-oil merger in U.S. history. It was surpassed the next year by
the buyout of RJR Nabisco Inc. by Kohlberg, Kravis & Roberts, a New York
investment house.
It's not the first time that Camilleri has discussed splitting up Altri! a. Last
year, referring to 2003 as a "watershed" year in tobacco litigation, he raised
the notion that a breakup was possible. But this was the first time he gave
investors some idea about when the breakup might occur.
However, the key to the breakup, he said, remains a victory in the litigation
against Philip Morris in Illinois and Florida and in a Department of Justice
case in Washington.
The Illinois Supreme Court is slated to hear arguments Wednesday on a $10.1
billion verdict last year that concluded the company misled smokers by
suggesting that "light" cigarettes delivered less tar and nicotine than regular
cigarettes.
In the Florida case, the state Supreme Court is reconsidering a decision that
threw out a record $145 billion verdict against Philip Morris USA and other U.S.
tobacco companies on behalf of 700,000 Florida smokers. A state appellate court
ruled that the cases had to be tried individually.
Meanwhile, the Justice Department, in a racke! teering trial that began in
September, is seeking a record $280 billion from the tobacco industry. The
government accuses tobacco companies of working together for decades to mislead
the public about the dangers of smoking.
"Our best guess is we hope to have a decision on all three by next summer,"
Camilleri said. "Regretfully, justice is very slow in this country."
Splitting into two or three companies could be a risky decision, said
Morningstar's Sam, noting the U.S. tobacco market is not growing as rapidly as
the international market.
Last year, operating income of the U.S. and international operations was about
$5 billion each. This year, however, Philip Morris USA is expected to record
about $4 billion in operating income, while operating income for Philip Morris
International is expected to be $6.5 billion to $7 billion.
Camilleri said the company would carefully weigh its decision to break apart.
"We will go to the board when we feel very comfortable that we will prevail upon
any challenge, and, believe me, there will be challenges," he said.
Copyright © 2004, Chicago Tribune