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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Madharry who wrote (9804)	1/29/2000 11:20:00 PM
From: James Clarke	Read Replies (3) \| Respond to of 78478

I agree that MO belongs in a diversified value portfolio (If I had to lay out a portfolio of 20 stocks, MO would be one of them). I wouldn't make a concentrated bet on it though. Somewhere in Ben Graham's original Security Analysis he singles out legal problems as something investors nearly always overreact to, and where you should take the other side. Philip Morris is one of my favorite companies in the world - I used to love to trade the shares up and down with litigation. And I've been too scared to buy it (good thing too, because I almost pulled the trigger at 28). That might tell you this is a screaming contrarian opportunity, if you have the guts. I had the good fortune to spend some time with a former big-time Fidelity portfolio manager, who I will not name, about a month ago. One of his two best ideas was the long term calls (LEAPS) at 25 strike on MO. You might want to look into whether that might be a better deal than buying the stock outright. The risk/reward might have changed since then.

To: Madharry who wrote (9804)	1/31/2000 11:18:00 PM
From: Stewart Whitman	Read Replies (1) \| Respond to of 78478

Armin, Regarding why MO is not spinning off their food business to shareholders.... For arguments about the implication of this type of corporate restructuring take a look at the proxies filled regarding RJR's spin-off of Nabisco (NGH) in spring of '99. Carl Icahn proposed the spin off of Nabisco shares in opposition to the board-proposed plan of spinning off domestic tobacco and (as far as I can see) leaving some litigation risk with NGH (a holding company for Nabisco shares). Clearly spinning off NA would give shareholders the food business without the implied litigation risk (as you propose wih MO) - this would clearly improve the valuation (tobacco with litigation risk, food without). IMO, the primary reasons the board recommended rejecting the Icahn plan were: 1. There might be a time-consuming (the board said years) litigation necessary to defend the position that the tobacco company could pay for all potential litigation cost. 2. Such a separation might expose the board and potentially shareholders to litigation because the separation would constitute a fradulent conveyance (my rough translation - the board and shareholders hide assets from litigators). As a result, I think until such time as the potential litigation costs become clearer, you will not get a true 'litigation-free' food spin-off, though, you might get a separation similar to RJR (tobacco separate from food, with litigation risk attached to both stocks). Regards, Stew