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NEW YORK -- Loews Corp., a conglomerate with interests in financial services, hotels and watches, plans to spin off the third largest cigarette maker in the U.S., Lorillard Inc., as a separate publicly traded company, The Associated Press reported.
The move would enable the parent company to pursue growth in other areas, while allowing the cigarette maker, which manufactures the Newport brand, to pursue acquisitions to expand in the U.S. tobacco market, the report stated. Lorillard also makes True and Kent cigarettes.
Lorillard's headquarters will remain in Greensboro, N.C., with current president, chairman and chief executive, Martin Orlowsky, according to the report. Loews' interest in Lorillard will transition to Carolina Group shareholders and Loews shareholders in a tax-free transaction, the AP reported, citing the company.
Loews chief executive, Jim Tisch, told analysts yesterday the board decided on the spinoff due to factors including the growth in dividends from other subsidiaries, as well as the development of a more benign U.S. litigation environment for tobacco companies, the AP reported.
Meanwhile, Lorillard will be in a better position to pursue acquisitions as the U.S. tobacco market shifts, the report stated.
"'We had a role to play in the portfolio of Loews companies," Orlowsky told the AP. "Frankly, that role was to provide cash dividends up to the parent company."
Going forward, Orlowsky told the AP Lorillard would likely reduce its dividends, which had essentially been all of its profits. He added, "We will have more flexibility."
Under terms of the deal, Loews will redeem all outstanding Carolina shares in exchange for Lorillard shares, with one Lorillard share for each share owned. Loews then will sell the remaining 38 percent of Lorillard outstanding stock to shareholders who want to exchange Loews shares for Lorillard's.
The spinoff is expected to close in mid-2008, subject to conditions including an Internal Revenue Service ruling, Securities and Exchange Commission clearance and an opinion on the deal's tax-free status by the tax counsel.