Altria Group Essay

In the 1950s, a widely publicized article in Readers’ Digest focused upon the health hazards associated with cigarette smoking. Since then, few companies have endured sustained attacks on their core product as much as has the Altria Group. There have been numerous changes within the Altria Group, many directly in response to health risk and other attacks from varied stakeholder groups.

With corporate headquarters located in Richmond, Virginia, the Altria Group (NYSE; MOS) is a parent company of Philip Morris USA (the largest tobacco corporation in the United States), John Middleton (a leading manufacturer of machine-made large cigars), and Philip Morris Capital Corporation (manager of a portfolio of primarily leveraged and direct-finance lease investments). The Altria Group owns 100 percent of the outstanding stock of Philip Morris USA, John Middleton, and Philip Morris Capital Corporation. Since 2002 the Altria Group has held a 28.6 percent economic and voting interest in SABMiller plc, one of the world’s largest brewers.

In 1847 Philip Morris was founded by a London tobacconist of the same name. In 1881 Philip Morris Ltd. went public in London. Later (in 1887) it became Philip Morris & Co., Ltd. In 1902 Philip Morris & Co., Ltd. incorporated in New York and was acquired in the United States in 1919 by a firm owned by American stockholders.

In 1955 Philip Morris established its Overseas Division, and in 1960 renamed it the International Division. In 1968 Philip Morris domestic was renamed Philip Morris USA, and in 2008, the Altria Group completed the spin-off of 100 percent of the shares of Philip Morris International to Altria’s shareholders. In 1985 Philip Morris incorporated and became publicly traded as a holding company and parent of Philip Morris Inc. That same year, Philip Morris acquired General Foods. In 1988 Philip Morris continued its growth in the food manufacturing industry with the acquisition of Kraft ( Jell-O, Kool-Aid, Maxwell House). In 1989 Kraft and General Foods combined to form Kraft General Foods. In 2000 Philip Morris continued to expand with the acquisition of Nabisco, which became part of Kraft. Several years later, in 2001, Philip Morris changed its name to Altria Group, Inc. (The name Altria, derived from the Latin word altus, conveys a notion of “reaching ever higher,” and emphasizes the company’s commitment to peak performance.) In 2007 Altria Group divested its distributed 88.9 percent of Kraft’s outstanding shares owned by Altria to Altria’s shareholders. As a result, Altria no longer holds any interest in Kraft Foods. In 2008 a similar spin-out of Philip Morris International was carried out with 100 percent of its shares being distributed to Altria’s shareholders.

Altria’s tobacco subsidiary, Philip Morris, is the world’s largest commercial tobacco company in sales. The flagship brand, Marlboro, was first introduced in 1924. Other chief brands include Basic, Black & Mild, L&M, Lark, Parliament, Virginia Slims, and Benson and Hedges. Sales in 2007 in millions were $73,801.0 for this 84,000-employee company that is number 23 on the Fortune 500, one of the Dow Jones Titans, and number 15 on the Financial Times Global 500.

Philip Morris operates in the tobacco industry with an NAICS code of 312. Its top three competitors, according to Hoover’s, are Altadis, the product of a Spanish-French merger and since February 2008 owned by Britain’s Imperial Tobacco. Altadis had 2006 sales of $16,495.7 (in millions) and 2006 employees of 28,103. A second chief competitor is the London-based British Tobacco Company (AMEX: BTI; London: BATS). This 55,145-employee (in 2006) company had 2006 sales of $49,325.1 (in millions). It is on the FTSE 500 and is number 117 in the Financial Times Global 500. A third major competitor is Reynolds American (NYSE: RAI), with (in millions) 2007 sales of $9,023.0 and 7,800 employees. It is number 28 on the Fortune 500 and is also one of the S&P 500.

Demand for cigarettes is driven by discretionary consumer spending and awareness of the health effects of smoking. According to Hoover’s, the profitability of this industry depends upon the strength of its marketing.

In 1999 the U.S. Department of Justice filed a racketeering lawsuit against Philip Morris (now an Altria division). After years of litigation, it was concluded that U.S. cigarette industry members conspired to minimize, distort, and confuse the public about health hazards of smoking, including nicotine’s addictive properties. Among other charges, Philip Morris and other industry members were also accused of marketing to young people under the age of 21 as a means to recruit “replacement smokers.” Thus, the 2001 name change to Altria was seen by some experts as a means to escape the stigma of selling tobacco products by “repositioning” its image in consumers’ minds. Altria has also spent $101 million on lobbying the U.S. government between 1998 and 2004, according to the Center for Public Integrity.

The Altria Group is led by the chairman and CEO of Philip Morris USA, Michael E. Szymanczyk. The company focuses on the development of financially disciplined businesses that are leaders in providing adult tobacco consumers with branded products.

Bibliography:

  1. Altria Group, www.altria.com (cited March 2009);
  2. Center for Public Integrity: Top 100 Companies and Organizations (Lobby Watch), www.publicintegrity.org (cited March 2009);
  3. Hoover’s, www.hoovers.com (cited March 2009);
  4. Robert H. Miles and Kim S. Camerson, Coffin Nails and Corporate Strategies (Prentice-Hall, 1982).

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