Altria Board Approves Spinoff Of Company's Kraft Foods Unit
By ANJALI CORDEIRO
January 31, 2007 11:52 a.m.
Altria Group Inc. said it will spin off its Kraft Foods Inc. subsidiary at the end of March, finalizing a long-awaited move that separates its food and tobacco operations and opens the door for a further restructuring of the parent company.
Altria and Kraft also posted their fourth-quarter results. Altria said its net jumped 29%, while Kraft's declined.
Altria's board approved the breakup, under which shareholders will get 0.7 of a Kraft share for every Altria share they own. Altria has an 89% stake in Kraft and its shares will be distributed on March 30 to Altria holders of record as of March 16. Altria will not own any shares of Kraft following the spinoff.
The move leaves Altria free to focus on its Philip Morris tobacco operations, especially its international unit. Investors and analysts think that the Kraft breakup could be followed by a spinoff of Philip Morris International.
Some analysts said the timing of the spinoff was earlier than they expected. "I was a little surprised they are going to do it at the end of the first quarter," said Standard & Poor's tobacco and food-distribution analyst Raymond Mathis. "They aren't going to wait around." Still, the decision to carry out the spinoff quickly is a good one since tobacco litigants will have less opportunity to oppose the move, he said.
Altria shares initially dropped after the announcement, then rebounded. In late-morning trading, shares were up 46 cents at $88 on the New York Stock Exchange. Kraft shares fell 44 cents, or 1.3%, to $34.39 on the Big Board. The food company's shares had been expected to come under some pressure soon after the spinoff as Altria holders sell the stock.
"It's 50 billion worth of stock and we have to believe that is going to pressure the share price of Kraft up to and after the spinoff," said D.A. Davidson analyst Tim Ramey.
Altria said in a statement that the spinoff will allow Kraft to make more acquisitions and compete more effectively in the food industry. Both companies will also have greater capacity to take on debt. (Read Altria's statement10.)
Philip Morris Cos., now known as Altria Group, acquired Kraft for $12.9 billion in 1988. The company sold 280 million Kraft shares via an initial public offering in 2001.
Altria has been interested in spinning off the food business for some time, but was holding off for more clarity on the issue of tobacco litigation. Last year Altria's Philip Morris USA tobacco unit benefited from some favorable legal decisions, opening the door for a possible breakup.
But not all the company's legal challenges have been resolved. There is a chance that some litigants could fight the Kraft spinoff, though analysts feel that any such legal opposition is likely to fail.
Wall Street expects Kraft, the maker of Oreo cookies and Maxwell House coffee, to earn 51 cents a share on revenue of $9.4 billion. Kraft has faced tough competition that has pressured margins and sales in recent quarters and commodity prices have also weighed on the business. The company has rid itself of some lesser known brands in recent weeks and analysts have speculated it could get rid of some more.
Altria Chairman and Chief Executive Louis Camilleri will step down as chairman of Kraft but will remain on Kraft's board. Kraft's chief executive, Irene Rosenfeld, will be elected to the additional post of chairman.
Altria's Net Jumps 29%
Altria said its net income rose 29% in the fourth quarter, boosted by strong tobacco-business results from improving trends in Western Europe. Net income was $2.96 billion, or $1.40 a share, compared with $2.29 billion, or $1.09 a share, a year earlier. Excluding items, Altria earned $1.27 a share during the quarter. Revenue rose 3.7% to $25.4 billion during the period.
Kraft reported its fourth-quarter earnings fell 19% on a $245 million write-down of its Tassimo assets, $177 million in costs for streamlining programs and a $69 million write-down on Cream of Wheat. The Northfield, Ill., food company's earnings were $624 million, or 38 cents a share, during the period, compared with $773 million, or 46 cents a share, a year earlier. Excluding the impairment costs, a gain on the sale of its Minute Rice brand and other charges, the company earned 51 cents a share. Revenue fell 3% to 9.37 billion. |
