January 31, 2007 at 9:51 pm · Filed under macroeconomy
Altria to Spin Off Rest of Kraft Altria Group Plans to Spin Off Rest of Kraft Foods to Shareholders By VINNEE TONG The Associated Press
NEW YORK - 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 rose 2 cents to $87.56 in late trading on the New York Stock Exchange while Kraft shares rose 7 cents to $34.90. 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.
January 31, 2007 at 9:51 pm · Filed under macroeconomy
The awe-inspiring numbers coming out of China these days will reassure the global and local investors who have bought into the proposition that this $2 trillion-plus economy is a can’t-miss buying opportunity.
On Jan. 10, China reported that its two-way trade with the rest of the world hit $1.76 trillion in 2006, while its global trade surplus shot up 74% to an all-time record high of $177 billion. The same day, an initial public offering by the country’s biggest insurer, China Life (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=LFC), more than doubled in value to $4.74 on the Shanghai Stock Exchange. The bourse’s benchmark index touched a new high and the combined market capitalization of stocks traded in Shanghai and Shenzhen broke the $1 trillion market for the first time.
Mainlanders, at least those who follow the currency markets, got another boost to their national pride a day later. For the first time in 13 years, the value of the yuan vs. the U.S. dollar actually exceeded the Hong Kong dollar’s fixed-rate cross-rate with the greenback. For Hong Kong residents of a certain age who tended to look down on mainland Chinese, the idea of China boasting a stronger currency than the former British Colony is a bit hard to take.
True, these are just numbers that most ordinary Chinese don’t scrutinize, and it’s easy to overstate their psychological impact on the markets. Yet it is tempting to look at the explosive growth of China and draw parallels to the gold-flakes-on-sushi-era of late-1980s Japan or the dot.com euphoria in the U.S. toward the end of the ’90s, given the instant wealth being generated among investors at the moment. A Dangerous Ride?
There has been a Greek chorus of economists at Western investment banks such as Morgan Stanley (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=MS) and JP Morgan (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=JPM), and credit agencies such as Standard & Poor’s, issuing blunt warnings that this won’t last. (Standard & Poor’s, like BusinessWeek, is a unit of The McGraw Hill Cos. (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=MHP)) Yet mainland day-traders and foreign investors alike continue to plow serious money into Chinese stocks traded on the mainland or exchange-traded funds that track big-listed mainland stocks.
Are they nuts? Even big-league market participants—who rode a market in 2006 in which A-share stocks jumped nearly 130% as measured by the Shanghai and Shenzhen 300 Index—are baffled by the mania that has gripped domestic investors.
Richard Hung is a board member and the biggest individual shareholder of Shanghai-listed Zhejiang Hisun Pharmaceutical, whose shares vaulted 10% on Jan. 10 and which boasts a price-to-earnings ratio of 40. “Nobody understands this market,” he says, and other than his stake in the drug company he is steering away from Chinese stocks. “The A-share market for me is very strange,” he says, adding, “I invest in New York and London but not in China.” Time Your Exit
However, the psychology that typically drives an investment bubble—in which fresh money chases asset classes delivering killer returns until, well, they don’t—is difficult to break free of. There’s always a nagging suspicion one is missing out on the investment opportunity of a lifetime, one that will put the kids through college or bankroll that vacation home on Maui.
S&P chief technical analyst Mark Arbeter recently issued a disturbing appraisal of the exploding trading volumes and price spikes with the iShares FTSE/Xinhua China 25 Index Fund (http://host.businessweek.com/businessweek/Corporate_Snapshot.html?Symbol=FXI) and similar China-linked investments, with this blunt warning, “Don’t be the last one out the door.” He points out the “FXI has spiked over 26% since Nov. 28, and 13.5% since Dec. 21.” Can you say mass speculation (see BusinessWeek.com, 1/9/07, )?
January 31, 2007 at 9:51 pm · Filed under macroeconomy
NEW YORK - Sirius Satellite Radio said on Tuesday it paid radio shock jock Howard Stern a stock bonus valued at nearly $83 million after its subscriber numbers exceeded early estimates set in their 2004 contract.
Sirius said it exceeded “pre-Howard Stern subscriber estimates” in 2006 by over 2 million subscribers and as a result delivered to Stern’s affiliates 22.1 million in company shares. Sirius shares closed at $3.76 on Tuesday.
In 2004, the two sides had based their estimate of 2006 subscribers on the average analysts’ forecast that the company would reach 3.5 million.
Sirius reported last week that it ended 2006 with more than 6 million subscribers, at the middle of a forecast range made in December.
“The decision to bring Howard Stern to Sirius required a very significant commitment and we are very pleased that our investment has dramatically paid off,” Sirius Chief Executive Mel Karmazin said in a statement.
Sirius said its agreement with Stern offers additional stock-based bonuses if it exceeds an ever-higher set of subscriber targets. The amount of excess growth needed to trigger a bonus increases over time and is substantially higher than 2 million, the company said.
Sirius said the bonus to Stern would not increase its diluted share count and that expenses related to the payment have been reflected in operating results throughout 2006.Copyright 2006 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content is expressly prohibited without the prior written consent of Reuters.(c) Reuters 2007. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.
