Split Decisions: Kraft moves closer to being spun off after tobacco ruling

A Florida court ruling favoring the tobacco industry eliminatedone of the last roadblocks to Kraft Foods Inc.'s parent spinning offthe food and drink behemoth. But analysts don't expect Altria GroupInc. to floor the pedal on the move.

The Florida Supreme Court on Thursday tossed a July 2000 punitivedamage award of $145 billion against tobacco companies for injuringsmokers, saying it was excessive.

Altria owns Philip Morris USA, the biggest U.S. cigarette maker,and has an 87.6 percent stake in Kraft, the world's second-largestfood and beverage maker -- producing Kool-Aid, Nabisco, Post cerealand cheese products. Philip Morris' share of the verdict would havebeen $74 billion.

J.P. Morgan analyst Pablo E. Zuanic said in a report Thursday thatKraft's chief executive of one week needs to get better performancefrom the Northfield-based company before it is spun off.

"We believe Altria will not proceed with a spinoff until the Kraftshare price better reflects the potential operating improvements thatthe new CEO Irene Rosenfeld may implement," Zuanic said.

Rosenfeld, first must undo some damage predecessor Roger Deromedihas done on Wall Street, said Morningstar analyst Greg Warren.

Deromedi surprised investors and analysts in January in announcingan additional $2.5 billion in restructuring costs on top of the $1.2billion effort the company started in 2004.

"He lost a lot of credibility with the street. Irene has to regainthat credibility," Warren said. "It's probably going to be a good sixmonths, if not longer."

New York-based Altria would not comment Thursday on spin-offplans. But in the past, it's signaled a breakup of the company andhas charged Rosenfeld with getting Kraft in shape for such a move. Aprovision in Rosenfeld's contract allows her to cash in sharesawarded her if she isn't named chairman of Kraft by Jan. 1, 2008.Altria's chairman and CEO Louis Camilleri currently is chairman atKraft.

Altria, not wanting Kraft stock to be hurt by any connection topotential judgments and seeking to ensure that Kraft isn't liable tocover any payouts that Phillip Morris can't make has been waiting forcourt cases to be resolved.

"Right now, there's a tobacco taint on Kraft," Warren said. "Inorder to eliminate that, you want to make sure you have a lot ofthese major cases behind you."

In December, the Illinois Supreme Court ruled Philip Morrisdoesn't have to pay a $10 billion damage award to users of its lightcigarettes, and a Department of Justice racketeering case against thetobacco industry is expected to be settled.

Altria last week plucked Rosenfeld from her job as chair and CEOat PepsiCo's Frito-Lay to replace Deromedi. Kraft had underperformedas Deromedi implemented a restructuring plan that has the companydivesting brands, cutting thousands of jobs and closing dozens offacilities.

Rosenfeld had been with Kraft for more than 20 years beforeexiting in 2003 and heading to PepsiCo.

"You want to be comfortable with Irene being in charge, that she'sgot the company going in the right direction," Warren said. "If shewere to come in and say within three months 'I've figured out what todo,' I'd be leery. . . . You want to make sure the stock can supportitself."

Thursday's court ruling lifted tobacco stocks. Altria Group sharesrose $4.43, or 6 percent, to close at $77.76, after briefly rising toa new 52-week high of $79.10.

Shares of Reynolds American Inc., the second biggest domesticcigarette maker, rose $4.59, or 4 percent, to $118.95 after earlierhitting a new 52-week high of $120.99.

cjackson@suntimes.com

- - -

ABOUT THE CASE

The Florida Supreme Court threw out the record $145 billionpunitive damage award against tobacco companies calling the awardexcessive.

The court also ruled that individual smokers could sue thecompanies -- and gave plaintiffs a potent legal weapon by upholdingthe trial jury's finding that the companies had negligently misledthe public about the dangers and addictive nature of cigarettes.

The class-action trial lasted two years, but the seven jurorsdeliberated less than five hours to reach the damage verdict.

The lawsuit was filed a decade ago in Miami by the husband-and-wife legal team of Stanley and Susan Rosenblatt.

Split Decisions: Kraft moves closer to being spun off after tobacco ruling

A Florida court ruling favoring the tobacco industry eliminatedone of the last roadblocks to Kraft Foods Inc.'s parent spinning offthe food and drink behemoth. But analysts don't expect Altria GroupInc. to floor the pedal on the move.

The Florida Supreme Court on Thursday tossed a July 2000 punitivedamage award of $145 billion against tobacco companies for injuringsmokers, saying it was excessive.

Altria owns Philip Morris USA, the biggest U.S. cigarette maker,and has an 87.6 percent stake in Kraft, the world's second-largestfood and beverage maker -- producing Kool-Aid, Nabisco, Post cerealand cheese products. Philip Morris' share of the verdict would havebeen $74 billion.

J.P. Morgan analyst Pablo E. Zuanic said in a report Thursday thatKraft's chief executive of one week needs to get better performancefrom the Northfield-based company before it is spun off.

"We believe Altria will not proceed with a spinoff until the Kraftshare price better reflects the potential operating improvements thatthe new CEO Irene Rosenfeld may implement," Zuanic said.

Rosenfeld, first must undo some damage predecessor Roger Deromedihas done on Wall Street, said Morningstar analyst Greg Warren.

Deromedi surprised investors and analysts in January in announcingan additional $2.5 billion in restructuring costs on top of the $1.2billion effort the company started in 2004.

"He lost a lot of credibility with the street. Irene has to regainthat credibility," Warren said. "It's probably going to be a good sixmonths, if not longer."

New York-based Altria would not comment Thursday on spin-offplans. But in the past, it's signaled a breakup of the company andhas charged Rosenfeld with getting Kraft in shape for such a move. Aprovision in Rosenfeld's contract allows her to cash in sharesawarded her if she isn't named chairman of Kraft by Jan. 1, 2008.Altria's chairman and CEO Louis Camilleri currently is chairman atKraft.

Altria, not wanting Kraft stock to be hurt by any connection topotential judgments and seeking to ensure that Kraft isn't liable tocover any payouts that Phillip Morris can't make has been waiting forcourt cases to be resolved.

"Right now, there's a tobacco taint on Kraft," Warren said. "Inorder to eliminate that, you want to make sure you have a lot ofthese major cases behind you."

In December, the Illinois Supreme Court ruled Philip Morrisdoesn't have to pay a $10 billion damage award to users of its lightcigarettes, and a Department of Justice racketeering case against thetobacco industry is expected to be settled.

Altria last week plucked Rosenfeld from her job as chair and CEOat PepsiCo's Frito-Lay to replace Deromedi. Kraft had underperformedas Deromedi implemented a restructuring plan that has the companydivesting brands, cutting thousands of jobs and closing dozens offacilities.

Rosenfeld had been with Kraft for more than 20 years beforeexiting in 2003 and heading to PepsiCo.

"You want to be comfortable with Irene being in charge, that she'sgot the company going in the right direction," Warren said. "If shewere to come in and say within three months 'I've figured out what todo,' I'd be leery. . . . You want to make sure the stock can supportitself."

Thursday's court ruling lifted tobacco stocks. Altria Group sharesrose $4.43, or 6 percent, to close at $77.76, after briefly rising toa new 52-week high of $79.10.

Shares of Reynolds American Inc., the second biggest domesticcigarette maker, rose $4.59, or 4 percent, to $118.95 after earlierhitting a new 52-week high of $120.99.

cjackson@suntimes.com

- - -

ABOUT THE CASE

The Florida Supreme Court threw out the record $145 billionpunitive damage award against tobacco companies calling the awardexcessive.

The court also ruled that individual smokers could sue thecompanies -- and gave plaintiffs a potent legal weapon by upholdingthe trial jury's finding that the companies had negligently misledthe public about the dangers and addictive nature of cigarettes.

The class-action trial lasted two years, but the seven jurorsdeliberated less than five hours to reach the damage verdict.

The lawsuit was filed a decade ago in Miami by the husband-and-wife legal team of Stanley and Susan Rosenblatt.