Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, September 21, 1994 TAG: 9409230057
SECTION: BUSINESS PAGE: B-7 EDITION: METRO
SOURCE: New York Times
DATELINE: NEW YORK LENGTH: Medium
Four months after Philip Morris said it would not separate its cigarette business from its food and beverage businesses, it will hold an unusual meeting today in New York to hear some large stockholders contend that they would be better off if the company separated the Marlboro Man from other businesses such as Miller Beer, Kraft Foods and Maxwell House coffee.
``With the Borden deal, it's clear that KKR has chosen food over tobacco,'' said Jon Lukomnik, the deputy comptroller in charge of the $51 billion New York City pension funds, which own 5.7 million Philip Morris shares. ``Philip Morris has never said why it decided not to split up the company, and we'd like to hear why.''
These stockholders say that Kohlberg, Kravis is managing to dilute the impact of its tobacco holdings by proposing to exchange large amounts of its RJR Nabisco shares for control of Borden Inc. Now they argue that Philip Morris shareholders also could benefit if their company took moves to reduce the effect its tobacco business has on the overall company.
One suggestion is for a separation of the company's food and beverage business from the tobacco business by issuing separate shares of stock for each group. Such a breakup, its proponents say, would bolster earnings and the price of the stock, which has rallied over the summer but is still below where it was in 1992. On Tuesday, the shares closed at $59, down $1, in trading on the New York Stock Exchange.
The idea is to wall off the tobacco business from Philip Morris' food and beer business, which generates 56 percent of revenues and 42 percent of profits. In recent years, the stock price has been depressed by the tobacco operations, as investors see the troublesome potential for legal liability and higher taxes on cigarettes.
On May 25, Philip Morris' board, after an eight-hour meeting, announced that a split-up would not be considered ``in the foreseeable future.'' But since the agreement last week to trade $2 billion worth of RJR Nabisco shares for the shares of Borden, some institutional shareholders of Philip Morris are pushing their board to reconsider.
``In the minds of many investors the idea of a spinoff is very much alive,'' said William Patterson, director of pension funds of the International Brotherhood of Teamsters, which collectively own $170 million worth of Philip Morris stock.
``The RJR divestiture raises our concern,'' he added, ``because it's just the latest in a series of blows against domestic tobacco, and we wonder whether it puts the idea of the spinoff back on the table.''
The state treasurer of Connecticut, Joseph Suggs Jr., said: ``We are very concerned about the stability of the company, and particularly about the languishing share price of its stock. We would like to see a split-up.'' Suggs is responsible for the State of Connecticut Trust and Retirement Fund.
Both officials will attend today's invitation-only meeting at the Philip Morris corporate headquarters in Manhattan. The gathering was postponed from July 13, when the institutional investors boycotted a proposed meeting because non-management directors, principally Hamish Maxwell, the former chairman of the board, were not scheduled to be present.
At least six, and possibly as many as 15, of the large investors who have been active in corporate issues will attend the meeting.
by CNB