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Strategies & Market Trends : Value Investing
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To: Madharry who wrote (9804)1/31/2000 11:18:00 PM
From: Stewart Whitman  Read Replies (1) of 78486
 
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
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