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Ruling could help Altria spin off Kraft
Virginia Business
March 2006 Stock analysts say a recent
legal decision favoring Philip Morris USA is a critical
step towards its parent
company’s goal of breaking apart its tobacco
and food divisions.
The Illinois Supreme Court
has overturned a $10.1 billion judgment in a class-action
lawsuit against
Philip Morris USA. The suit alleged that the Richmond-based
tobacco company misled customers over the labeling
of its "light" cigarettes.
"This was one of the larger hurdles for them
to get over, because the judgment was so huge," says
Greg Warren, an analyst covering the tobacco and food
industries for Morningstar Inc. He notes that the company
is still awaiting word on two other major cases, the
Department of Justice’s racketeering suit against
cigarette manufacturers and the appeal of a class-action
lawsuit brought by smokers in Florida.
Many observers believe that
the Justice lawsuit is losing steam. It initially
sought a $280 billion judgment
against the tobacco companies, but that amount has
been downgraded to $14 billion. The Florida case, initially
won by the plaintiffs, was overturned on appeal and
is being heard by the U.S. Supreme Court. "Once
these are resolved, Altria will separate the business
divisions," says Warren. "It’s just
a matter of when."
Splitting the food and tobacco
divisions is expected to have more upside potential
for Illinois-based Kraft
Foods, which employs 600 people at a cookie and cracker
plant in Henrico County. Altria now owns 85 percent
of Kraft’s stock. Kraft recently announced that
it will cut 8,000 jobs and close 20 plants in an expansion
of an ongoing restructuring. The company refused to
identify which plants it will close.
Philip Morris USA continues
to face legal trouble, but the worst of the litigation
appears to be over,
and the Illinois ruling could serve to discourage further
lawsuits, says Carl Tobias, a professor at the T.C.
Williams School of Law at the University of Richmond.
Still, says Warren, "You just never know — somebody
would come up with another ingenious legal strategy," he
says. "And the last thing Altria wants is to have
any tobacco litigation hanging over Kraft Foods once
they split it off."
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