Altria to spin off rest of Kraft

Altria to spin off rest of Kraft

	Published : Thu, 01 Feb 2007 00:56 By : Agencies Print this Story

NEW YORK (AFX) - Now that Altria is poised to jettison its Kraft Foods subsidiary, investors expect the payoff will be a higher share price as the company transforms into almost purely a tobacco company.

Altria Group Inc., whose tobacco operations make the top-selling Marlboro cigarette brand, plans to spin off its majority stake in Kraft Foods Inc. in March.

That will leave Altria consisting primarily of tobacco units Philip Morris USA and Philip Morris International and a stake in beer maker SABMiller PLC.

Altria's announcement Wednesday had been widely anticipated by Wall Street as the first step in a restructuring plan designed to make the company more valuable to investors. Some market watchers believe Altria's share price has not benefitted as much as its should from a rise in the tobacco sector this year.

'2007 is poised to be a key year in the evolution of our company,' Chief Executive Louis Camilleri said.

The spinoff potentially could be halted or at least stalled if plaintiffs in cases pending against the company seek a court order to stop it. Analysts have said such an effort is unlikely to succeed.

Kraft Foods, the second-largest food and beverage company in the world, sells products such as Kraft cheese, Oreo cookies, Ritz crackers and Maxwell House coffee.

The distribution of Altria's 89 percent stake in Kraft to Altria's shareholders will be made on March 30 to shareholders of record as of March 16. Altria will distribute about 0.7 of a share of Kraft for every one share of Altria. The exact ratio will be determined on he record date.

Kraft, based in Northfield, Ill., has been trading on its own since a 2001 public offering that left Altria with a majority stake in the business.

Altria said the split boosts Kraft's ability to make acquisitions, allows managers to focus their respective businesses and gives both companies greater debt capacity.

'Once they spin off Kraft, you'll be left with a tobacco business operating in a strong environment, with a vastly improved legal environment, substantial free cash flow and an unleveraged balance sheet,' said Charles Norton, portfolio manager of the Vice Fund, which invests at least 80 percent of its assets in companies that make products deemed 'socially irresponsible.'

Analysts and investors have eagerly awaited the restructuring since plans for it were outlined in November 2004.

Altria has grown more comfortable with its tobacco litigation risk and Kraft's readiness to stand alone, which allowed them to proceed.

Kraft, based in Northfield, Ill., subsequently announced that Camilleri will step down as chairman of its board of directors March 30 and will be replaced by Kraft CEO Irene Rosenfeld. Camilleri will continue to serve on the board.

Camilleri said Altria feels it could ward off any legal challenge to the spinoff.

Any challenge, legal analysts say, would need to prove that Altria would be unable to pay potential legal damages if the Kraft spinoff is completed. It is unclear whether there is a time limit for challenges to be filed, but Camilleri said that unless a court issued an order before March 30 halting the spin off, it would go ahead.

Next, analysts expect the New York-based company could split its domestic and international tobacco divisions later this year.

Norton believes that could be followed by 'monster stock buybacks' worth as much as $40 billion.

'The important thing to bear in mind in our view is that this is really just the beginning of a process from Altria to increase shareholder value,' Norton said.

Philip Morris USA is the biggest cigarette maker in the nation and holds nearly half of the total market, selling the Marlboro, Virginia Slims, Parliament and Basic brands.

Executive Director Kathy Mulvey of Corporate Accountability International said the spinoff was a bittersweet victory for public health advocates.

'On the one hand, the spinoff dramatically reduces the financial and political clout of the world's largest tobacco corporation,' she said in a statement. 'On the other hand, it paves the way for Philip Morris to pursue new markets even more aggressively.'

Altria also reported Wednesday that its profit rose 29.3 percent on the strength of acquisitions and international sales to $2.96 billion, or $1.40 per share, in the October-December period from $2.29 billion, or $1.09 per share, a year ago. Revenue rose 3.7 percent to $25.4 billion from $24.49 billion a year ago.

Excluding one-time charges such as asset impairment and exit costs, earnings per share for the quarter rose 8.5 percent to $1.27. Analysts polled by Thomson Financial had predicted fourth-quarter net income of $1.23 a share on $18.23 billion of revenue. The earnings estimates typically exclude one-time items.

Meanwhile, Kraft said fourth-quarter earnings fell 19 percent to $624 million, or 38 cents per share, down from $773 million, or 46 cents per share, a year earlier. Revenue fell 3 percent to $9.4 billion from $9.7 billion.

Altria shares slipped 15 cents to close at $87.39 on the New York Stock Exchange while Kraft shares rose 9 cents to end at $34.92. Altria shares have traded in a 52-week range of $68.36 to $90.50 while Kraft shares have traded between $28.43 to $36.67 over the past year.

AP Business Writer Dave Carpenter in Chicago contributed to this report.