Loews to Spin off Lorillard Tobacco Unit

Source from:  By Hugh Son and Thomas Mulier Bloomberg News December 18, 2007 12/20/2007

Lorillard, the oldest U.S. cigarette company, will be spun off by Loews as the billionaire Tisch family capitalizes on rising prices for tobacco stocks. Holders of Loews and Carolina Group, the tracking stock for the tobacco unit, will get shares in Lorillard, whose brands include Newport and Kent, the company, based in New York, said Monday. The stock price for Carolina implies a market value of about $15 billion, according to Bloomberg data. Loews gained $1.11, or 2.37 percent, to $47.91 in late trading on the New York Stock Exchange, and Carolina Group rose $1.06, or 1.21 percent, to $88.36. Tobacco shares are among this year's best performers as investors seek companies whose earnings are likely to weather slower economic growth. Analysts say Lorillard may also become a takeover target after a wave of mergers cut the number of major publicly traded cigarette companies to four from six. "Lorillard would be a smaller, but valuable opportunity to get some brands and share in a highly profitable market" for a potential buyer, said Bruce Davidson, an analyst at Blue Oar Securities in London. Japan Tobacco bought a British cigarette company, Gallaher Group, this year, while the Spanish company Altadis is being acquired by Imperial Tobacco Group. Carolina Group has risen about 37 percent this year, compared to a 3.1 percent gain by the Standard & Poor's 500-stock index. Loews gets more than half its revenue from the property and casualty insurer CNA Financial, based in Chicago, and also has a majority stake in Diamond Offshore Drilling, which drills for oil and natural gas. "Tobacco is not a strategic asset for us," the Loews chief executive, James Tisch, said. "The company can do better as an independent." The spinoff of Lorillard should improve Loews's "risk profile in the eyes of rating agencies and equity investors," Tisch said during a conference call with investors and analysts. "We'll be somewhat more exposed to insurance, there's no doubt about that," Tisch said. "From my perspective, that's not a problem at all. Our shareholders understand we have volatility in our earnings." Loews reported in October that its third-quarter profit fell 21 percent as lower revenue, investment losses and a legal settlement hit its insurance unit. Loews said in October that it had agreed to sell Bulova, the 132-year-old watch-making company, to Citizen Holdings of Japan for $250 million. The other units "are not for sale, and we're not disposing them," Tisch said. Loews said it expects the tobacco spinoff to be complete by the middle of next year, and said Lorillard, based in Greensboro, North Carolina, would probably list on the New York Stock Exchange. Loews, which has owned Lorillard for almost 40 years, raised $980 million in 2002 by selling the Carolina tracking shares. The Tisch family owns about 23 percent of Loews, according to Bloomberg data. The brothers Laurence and Preston Robert Tisch took over their father's resort business in 1945 and formed Tisch Hotels. They invested in Loews Theaters in 1960, Lorillard Tobacco in 1968 and CNA Financial in 1974. James Tisch has been chief executive since 1999. Thomas Mulier reported from Geneva. Enditem