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Altria Group (MO)
Break-up of Altria Could Be Delayed
Altria Group Inc. fell in trading Thursday morning, following a downgrade from outperform to in-line, by Goldman Sachs, after news that the company's planned break-up might occur later than expected. Altria Group, the parent company of Phillip Morris USA and Phillip Morris International, is facing a lawsuit by consumers claiming to have been defrauded by their "light" cigarettes. A judge postponed a ruling determining whether the plaintiffs in the case can file a class-action lawsuit. Investors have been eager for this break-up for awhile, and so this news comes as a disappointment, and adds an element of uncertainty to the schedule of things.
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The break-up had been expected to occur between early and mid 2006, however it is possible that the judge's ruling on the case itself might only occur in 2006. Goldman Sachs analyst Judy Hong said that this delay along with other events could delay the break-up of the company by two years. The forecast noted that the success of other cases against tobacco companies could impact this case, as well as others that might be presented in the future. Hong also said that the case could get certified as a class-action, and that the company's board of directors "is likely to wait until the certification is overturned before endorsing the break-up."
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There are disagreements about the impact this case will have though. Bonnie Herzog, an analyst from Citigroup Investment Research, said, "We do not believe this decision alone will have an impact on the timing of the split-up of Altria." She added that if other cases are decided favorably, the impact from this case would be decreased. Either way, once the legal hurdles are cleared, the company could be poised to break up into two or three parts. Altria has a majority stake in Kraft, which hasn't performed as well as Phillip Morris recently, so investors have been eager to see it spin-off from the company.
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The Chairman and Chief Executive of Altria, Louis Camilleri, has noted that although the timing of these legal issues are uncertain, the company remains committed to the break-up, and that it is necessary in order for the business units to achieve their full value. He said that they have been decentralizing corporate functions among other restructuring tasks. Since Camilleri introduced his idea of splitting up the company a year ago, Altria's shares have climbed roughly 50%. While these legal issues pose some potential setbacks, the future still looks promising.
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Profile |
Philip Morris Companies is a holding company whose principal wholly-owned subsidiaries, Philip Morris Incorporated, Philip Morris International Inc., Kraft Foods, Inc., and Miller Brewing Company, are engaged in the manufacture and sale of various consumer products. A wholly-owned subsidiary of the Company, Philip Morris Capital Corporation, engages in various financing and investment activities.
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