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Loews To Spin Off Tobacco Division

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By VINNEE TONG, The Associated Press

Published: December 18, 2007

NEW YORK - The future of the U.S. tobacco industry came into sharper focus on Monday when Loews Corp. announced 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. Loews shares rose $1.14 to $47.94

Consumers buy fewer cigarettes because of health concerns, smoking bans and higher taxes.
Altria Group Inc., the parent company of the nation's largest cigarette maker, plans to announce on Jan. 30 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 of Marlboro-branded snus in the Dallas-Fort Worth area and Marlboro-branded chewing tobacco in Atlanta earlier this year.

Reynolds American Inc., the nation's second-largest tobacco company, bought smokeless tobacco company Conwood Co. in May 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.

"In a tobacco market where other large players are going out as acquirers, Lorillard or Carolina Group would need to be positioned to do the same thing in order to remain in the top tier players," Rochdale Securities LLC analyst Steven McSorley said.

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 as president, chairman and chief executive of the tobacco business.

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