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Loews to spin off its cigarette unit

Lorillard Tobacco will develop alternatives to its main profit source as U.S. smokers dwindle.

NEW YORK - The future of the U.S. tobacco industry came into sharper focus yesterday when Loews Corp. announced it would spin off its Lorillard Tobacco Co. cigarette subsidiary, positioning the unit to compete with rivals that are aggressively looking to replace cigarettes as a source of revenue.

As U.S. smokers buy fewer cigarettes, tobacco companies are looking for alternatives such as cigars, chewing tobacco and snus, which are tobacco pouches similar to tea bags placed between a cheek and gums and are popular in parts of Europe.

An independent Lorillard could take on debt to pursue acquisitions or develop such alternatives on its own. Lorillard is the maker of the Newport, Kent and True cigarette brands.

A spin-off of the tobacco business also could remove some legal risk and boost the market value of New Loews, the New York company that owns Loews Hotels Holding Corp., watchmaker Bulova Corp., CNA Financial Corp., and Diamond Offshore Drilling Inc.

Loews shares rose $1.14, or 2.44 percent, to $47.94 yesterday.

Consumers have pulled back on buying cigarettes because of health concerns, smoking bans and higher taxes.

Altria Group Inc., the parent of the nation's largest cigarette-maker, plans to announce Jan. 30 the timing of when it will spin off its Philip Morris USA Inc. and Philip Morris International Inc., creating two separate publicly traded tobacco companies.

In its efforts to replace cigarettes, Philip Morris USA completed its purchase last week of cigar-maker John Middleton Inc., based in King of Prussia, Pa. Philip Morris also started market tests of Marlboro-branded snus and Marlboro-branded chewing tobacco.

Reynolds American Inc., the nation's second-largest tobacco company, bought smokeless-tobacco company Conwood Co. in May 2006 and has reported strong results from the Grizzly-brand moist-snuff.

After the spin-off expected by mid-2008, Lorillard's headquarters will remain in Greensboro, N.C.

Loews has been looking for growth in areas such as natural gas exploration. In June, Loews agreed to pay $4.03 billion for Dominion Resources Inc.'s natural gas operations, which have since been renamed HighMount Exploration & Production L.L.C.

Loews chief executive officer James Tisch told analysts yesterday that the board decided to do the spin-off because of growth in dividends from its other subsidiaries, as well as the development of a more benign U.S. litigation environment for tobacco companies.