Board members at Altria, the tobacco company behind Marlboro cigarettes, are gathering today to consider a historic plan to split the group in two, separating its fast-growing international operations from a US business weighed down by litigation, regulation and declining sales.
As tobacco companies pursue newly brand-conscious smokers in emerging markets, particularly across Asia, investors believe Altria's Philip Morris International (PMI) unit will be given a new lease of life by a spin-off. The US business, by contrast, is hunkering down for a period of cost-cutting.
Shares in the parent company have been ticking higher in recent trading amid speculation that the board could finally be ready to agree the move.
"We expect PMI to become much more aggressive as a standalone company with no ties to the US," said Bonnie Herzog, an analyst at Citigroup. "We anticipate that PMI will become even more aggressive with its acquisition strategy to increase its presence in markets where cigarette consumption is increasing and GDP is rising."
PMI is already reaping the benefits of a marketing push in these emerging markets. While sales volumes are falling at an annual rate of 3.3 per cent in the US, PMI can boast growth of 0.8 per cent in eastern Europe, the Middle East and Africa and 15.9 per cent in Asia. In its most recent quarterly results, the division trumpeted the success of an acquisition in Pakistan and how it had been able to win Koreans over to new versions of its Marlboro Filters and Virginia Slims brands.
The concern is that the Food & Drug Administration may soon take over regulation of tobacco products. There could also be increases in taxes on cigarettes to help plug the government deficit.
As a result of their contrasting fortunes in recent years, PMI now accounts for twice as much profit to Altria as does its US sister company. Earlier this year, PMI decided to stop importing cigarettes made in the US.
Analysts expect that PMI could be worth up to $100bn (£50bn) as a standalone company, compared to barely $50bn for the remainder of Altria, which also owns a stake in brewer SABMiller.Reuse content