Tobacco.org

A Decision That May Benefit Both Parent and Spinoff  

Lorillard, the third-largest American cigarette company, had a net income of $898 million last year. Of that amount, $363 million was carried as part of Loews $2.5 billion net income, with the rest credited to the Carolina Group, which until Tuesday had been a tracking stock for the tobacco business. Over the years, Loews has also relied on its cigarette business for a substantial amount of its cash flow, a reliance no longer necessary because of the company’s increasing success in other areas.

The shares that began trading on Tuesday ended their first day up about 6 percent, closing at $76.63.

The Loews chief, James S. Tisch, has said that politics had nothing to do with the company’s decision to spin off Lorillard. And yet the 163-page prospectus for the new Lorillard shares warned investors that company’s heavy reliance on the Newport group could potentially have a negative impact on Lorillard, noting that federal health officials had raised concerns about menthol’s effects. Analysts have said that by removing tobacco from its portfolio, Loews will find borrowing money cheaper.

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