Interesting little spiel from raging bull today...if anybody understands this...
On the Philip Morris board, DonDon78 weighed in on what an IPO from
Philip Morris' Kraft foods division would mean for the company.
"MO is in the tobacco and beer businesses. The IPO won't affect that
revenue or earnings at all. MO owns 100% of Kraft now, so it
consolidates Kraft's businesses with its own on its books now. After
the IPO, MO will only be allowed to consolidate Kraft's earnings with
its own if it owns 80% or more of Kraft. I'm all but positive that it
will; I think MO will end up holding about 85% of Kraft (this is just
my opinion; others think it'll be a different number). So, right now,
all of Kraft's earnings appear in MO's bottom line. After the IPO, MO
will still consolidate, showing all of Kraft's earnings, but it will
also show that about 15% of those earnings are not owned by MO;
they're owned by the other new shareholders of Kraft. So MO's earnings
will be lowered by about 15% of Kraft's earnings (or whatever that
percentage turns out to be). But when Kraft has its IPO, MO will sell
about 10% of its shares of Kraft (that, too, is my number -- others
may think it's a different number) and receive about $5 billion for
it. Kraft will sell about 5% of its shares out of its current
authorized but unissued shares. All of this cash will end up in MO's
hands to pay MO for Nabisco. But MO currently has debt on which it
must pay interest. That interest lowers MO's earnings. It comes right
out of the next-to-bottom line (it's just before taxes). So if MO uses
all the money it will receive from the IPO and Kraft to reduce its
debt load, that will offset the income it will no longer receive from
the 15% of Kraft which it no longer owns. Instead of having to pay
that interest, that money will now still belong to MO, thereby
increasing its earnings to offset what it won't be getting from Kraft.
So that's why I see the IPO as, roughly, a wash."
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