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Philip Morris International (PM), Altria (MO), and Kraft (KFT) - three dominating staples stocks. How kind Altria has been to its shareholders: Not only a strong stock performance by big MO but the welcome addition of the Philip Morris International and Kraft spin-offs.

Remarkably, there is another tobacco-food-and-beverage conglomerate that looks very much like the old Altria. That company is Japan Tobacco (OTCPK:JAPAF). It could easily split into four parts to unlock value.

Most people know Japan Tobacco for its tobacco. Few realize the company has a huge beverage and food business. Believe it or not, Japan Tobacco has a pharmaceutical business with multiple drugs in the pipeline for the treatment of HIV, hyperlipidemia, and auto-immune diseases.

The other divisions are so under the radar Japan Tobacco doesn't even mention them on their web site when you click on their products and brands.

While they are buried under the domestic and international tobacco, the food and beverage division has significant revenue and the pharmaceuticals an intriguing product pipeline.

(click to enlarge)

(From Quarter ending June 2012)

The company is undervalued, with a P/E of 13, because the market is placing too much emphasis on the strong yen and the aftermath of last year's tragedy at Fukushima, and misses the breakup potential of food and drugs. So far, food and beverage has been minimally profitable. A spin-off would improve help improve the tobacco assets PE and possibly bring focus to the food and beverage profitability. The pharmaceutical line has multiple drugs in late stage development - a totally buried asset.

So what could and should happen?

Split Japan Tobacco into four parts:

1. Domestic tobacco. The dominant tobacco company in Japan with over 50% market share.

2. International tobacco. The third-largest international tobacco company. Sells Winston, Camel, Benson & Hedges, and Silk in 120 countries.

3. Beverage and food. Coffee; noodles and rice for food.

4. Pharmaceuticals. Lots of products in early phase trials. One up for FDA review in partnership with Gilead.

Japan Tobacco needs an activist shareholder. A breakup would likely create shareholder value bringing needed to focus to its domestic tobacco, beverage and food, and pharmaceuticals.

There's buried treasure in tobacco.

Source: Which Tobacco Company Could Break Up Into Four Pieces?

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