Altria (NYSE: MO) is a stock that is both widely-held and widely known, but there are some interesting developments in the shares that are going to impact more than just Altria holders.
Altria holders were recently given the final spin-off ratio of the Kraft (NYSE: KFT) spin-off shares that will be paid out to MO shareholders, although the guidelines have been known for some time as "roughly 0.7 shares of KFT per MO share".
On March 30, 2007, Altria will distribute all of the shares of Kraft that it owns, representing approximately 88.9% of Kraft's outstanding shares as of the record date. Altria shareholders will receive 0.692024 of a share of Kraft for each share of Altria common stock held as of 5:00 PM EST on March 16, 2007.
Altria shareholders will receive cash in lieu of fractional shares for amounts of less than one Kraft share. Unfortunately, this ratio implies that anyone holding fewer than 100,000 share of MO as of the record date will be receiving "some cash". It probably won't be enough for beer and smokes.
Index Changes for S&P
This scenario has a bit of extra juice to it though. Last night, Standard & Poor's announced that Kraft would be added to the S&P 500 Index now that it had enough of a float compared to its market cap. The S&P is a free-float weighted reading now and if roughly 89% of the stock has been locked-up inside of Altria, then less than $6 billion of its $52.5 billion market capitalization would have been counted by S&P for a weighting on its own. This index addition was probably an easy one to guess as there aren't exactly endless numbers of companies of that size.
Implications on the DJIA
This spin-off upon completion is going to actually have an impact on the weighting of certain stocks in the Dow Jones Industrial Average. Because the DJIA is a "Stock Price Weighted Index," this gives all of the companies with a higher stock price than the When-Issued MO shares when the both the MO and MO-WI shares converge into one.
So, which DJIA components will that impact? It will give the best weighting gain to the shares that are already higher in stock price than the current MO shares and will give some boost to the stocks that are priced in between the MO-WI shares and MO shares. Of course there are some that are very close to the prices now and they can change between now and the conversion.
The DJIA component stocks with a higher price than MO right now are Boeing (NYSE: BA) at $90.77 and IBM (NYSE: IBM) at $95.00. The stocks that are currently above the MO-WI share price are American International Group (NYSE: AIG) at $67.95, Caterpillar (NYSE: CAT) at $66.84, 3M (NYSE: MMM) at $77.38, United Tech (NYSE: UTX) at $66.36, and Exxon Mobil (NYSE: XOM) at $75.29.
There is a wildcard as well, because two DJIA components happen to be very close in price -- Proctor & Gamble (NYSE: PG) is $63.90 and Johnson & Johnson (NYSE: JNJ) $60.25. So, an upgrade here or downgrade there or a piece of big news on any of the stocks could impact the ratios.
This is a situation that many traders and analysts alike will be more than happy about. It has only been in the works for almost 6 years, and there is still more to the story.
Ultimately, Altria will be Altria USA and Philip Morris International. This is also set for a spin-off, or at least that has been the thought for some time. In addition, Altria still holds a 28.6% economic and voting interest in SABMiller, which is the second largest brewer in the world (depending on the metric used). Altria also owns Philip Morris Capital Corporation as well, which owns lease financing operations involved in aircraft, manufacturing facilities, power generation, and real estate. That operation will probably remain inside the Altria parent, but you never know for sure. The SABMiller stake is another potential spot it can tap if it chooses, so this one is a long way from over.
There is a lot more to the story than a packet of Velveeta® and a pack of Marlboro's®.
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