Managing in Troubled Times Case Study

Altria: The American Tobacco Giant’s Troubled Portfolio

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Abstract:

New York based Altria Group Inc.(ALG), the parent of the world’s second largest consumer packaged-food company Kraft Foods, was a leading Food and Tobacco Conglomerate. In addition to Kraft Foods, ALG’s portfolio of operating companies included Philip Morris International, Philip Morris USA- producers of the world’s popular Marlboro brand of cigarette and also had a financial services division Philip Morris Capital Corporation. Altia Group was known as Philip Morris Companies and changed its name to Altria in the year 2003, which was considered to be an effort of image change or a mere PR campaign by several analysts. Since its acquisition of Kraft Foods in 1988, Altria was accused of using its Food division to hide its tobacco negatives.

Kraft Foods’ performance was declining and Altria announced the possibility of spinning off Kraft in 2004 and was planning to restructure its operations since then. Kraft Foods was also contemplating to be independent of its tobacco tainted parent Altria Group Inc which had 88% of its stake. ALG alike many other tobacco giants faced large amount of tobacco litigations for long and was waiting for its legal liabilities to be cleared before proceeding with any restructuring. In 2006, ALG had favorable rulings for its three major tobacco cases and some analysts expected an announcement of Kraft spin-off as the legal environment seemed to be improving. But Altria did not proceed with Kraft spin-off as according to the company still huge legal risk existed for the company. The case talks about the corporate portfolio structure of ALG and the challenges that the conglomerate faced like increasing health consciousness, government regulations, excise taxes and tobacco litigations.

Pedagogical Objectives:

• To discuss Altria as a corporate and its entities
• To understand the legal liabilities involved for tobacco companies
• To discuss the importance of corporate restructuring
• To understand the importance of right mix of companies in a corporate portfolio
• To understand the role of a corporate parent in managing its portfolio and restructuring.

Keywords : Kraft Foods; Altria; Food and Beverage Company; Tobacco Company; Tobacco litigations; Corporate Restructuring; Corporate Portfolio Management; Reasons for troubles at Kraft Foods; Reasons for Spin-off of Kraft Foods; Tobacco Liabilities for Altria; Managing in Troubled Times Case Study; Lawsuits for Altria; Liabilities to Tobacco Companies; Ethical Issues for Tobacco Companies; Philip Morris International; Philip Morris USA; Philip Morris Capital Corporation; Second Largest Consumer Packaged-goods Company; Marlboro; Cigarettes