Marlboros to be Made Legally in China Under Pact

Source from:  By Brad Dorfman CHICAGO, Dec 21 (Reuters) 12/22/2005

Marlboro cigarettes will be produced legally for the first time in China, the world's largest cigarette market, under an agreement announced on Wednesday between tobacco company Philip Morris International and China's state run tobacco company. Under the agreement, Philip Morris, a unit of Altria Group Inc. (MO.N: Quote, Profile, Research) , and a China National Tobacco Corp. unit will also form a joint venture to offer Chinese cigarette brands globally and export tobacco products and tobacco materials from China. A small quantity of Marlboro cigarettes have been imported legally into China in recent years. But like other signature U.S. brands, counterfeit Marlboros have been a fixture in China. The 10-year agreement grants a license for the cigarettes to be made legally in China. "Investors have been waiting for concrete signs that Philip Morris is getting into China and today's announcement is strong evidence of this," Bonnie Herzog, analyst at Citigroup, said in a research note. Herzog, who rates Altria "buy," said China National controls 90 percent to 97 percent of the Chinese tobacco market. China National sold 1.87 trillion cigarettes in 2004. Philip Morris International shipped 761.4 billion cigarettes in 2004. The companies expect the production of Marlboro in China and the sale of Chinese brands by the joint venture to begin in 2006. Neither expects the deal to materially impact financial results immediately. The joint venture will be 50 percent owned by Philip Morris International and 50 percent owned by China National Tobacco Import and Export Group Corp., a unit of China National. Altria shares were up 8 cents at $76.14 on Wednesday on the New York Stock Exchange. Enditem