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Diversified holding company Loews Corp. (LTR) said Monday it will spin off its Lorillard cigarette unit, maker of Newport menthol cigarettes, in a tax-free transaction. After the spinoff, wholly-owned Lorillard will become a separate, publicly-traded company.

Loews currently has two classes of common stock: Carolina Group shares, which reflect the economic performance of a group of assets called the Carolina Group (principally Lorillard and its subsidiaries); and Loews common stock, which tracks Loews' entire portfolio, including the interest in the Carolina Group not represented by Carolina Group stock.

Loews said it will first redeem all outstanding Carolina Group shares in exchange for Lorillard shares, which will constitute about 62% of the new company. The remaining 38% will go to Loews common shareholders. "A spin-off of Lorillard will benefit both companies as well as the holders of Loews common stock and Carolina Group stock," CEO James Tisch said. The transaction is conditional on a favorable IRS ruling among other contingencies. The spinoff is expected to go through by mid-2008.

On Sunday, Barron's cover story said investors in Warren Buffett's Berkshire Hathaway (BRK.A (BRK.B might do better in the smaller Loews, which boasts stellar performance and management combined with a more manageable cap size (Barron's Pans Berkshire).

On Dec. 7, Morningstar research told investors, "Lorillard is a standout in the U.S. cigarette market, generating positive volume growth in an industry that is in decline." It noted, however, that, "the level of disclosure from Loews about crucial aspects of Lorillard's financial performance is poor, making it more difficult to evaluate the tobacco firm's operations and financial worth," a problem the spinoff will likely address.

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Source: Loews to Spin Off Cigarette Unit