Tuesday, October 2, 2007

Altria Spin Documents Filed With SEC- Some Details

Here are some details on the upcoming independent PMI.

Altria's (MO) subsidiary, Phillip Morris International (PMI) on Thursday took the first regulatory step toward a spinoff of the company's overseas tobacco business.

PMI filed a Form 10 with the Securities and Exchange Commission, a move expected since Altria's announcement last month. The cigarette maker said it anticipates making a final decision and announcing the timing of any spinoff at its regularly scheduled board meeting Jan. 30. In it Atria revealed the spin off will be a share for share event meaning that Altria shareholders will receive one share of PMI for each share of Altria they own. I will answer a full Q&A in another post.

In 2006 PMI had net income of $6.1 billion. I use it because 2007 is not yet complete and want to use a hard number. The spin will produce 2.1 billion shares making the initial EPS approximately $3 a share. If we give PMI a 15 multiple (middle of the road) that places the value of it at $91.5 billion dollars and with 2.1 billion shares being distributed that means we get a share price of about $45.

Cash Flow, Dividend and Debt:
Cash flow from operations for the first six months of 2007 was a staggering $4.2 billion. In 2006, PMI paid Atlria $3 billion in dividends. If kept consistent that would equate to $1.42 a share or a yield of 3.1% (assuming the above valuation). in 2006 PMI had a paltry $2.2 billion in long term debt and shareholder equity of $14 billion. If the debt to equity ratio was brought up to 1, bu no means excessive and easily manageable, PMI could easily add an additional $12 billion and change to debt for repurchases and or acquisitions.

A Hidden Tidbit In The Filing:
"We anticipate that our Board of Directors will authorize a share repurchase program based on a prudent balance between our anticipated financial needs and our goal to generate superior returns to our stockholders. Because we are a holding company, our principal sources of funds are from the payment of dividends and repayment of debt from our subsidiaries. Our principal wholly-owned and majority-owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock."

Letter from CEO Cammilleri:

Dear Altria Stockholder:

As you know,on. " " the Board of Directors of Altria Group, Inc. approved the spin-off of Philip Morris International Inc., or PMI, a wholly owned subsidiary of Altria which will be the world’s most profitable publicly traded tobacco company following the spin-off. The spin-off will enable each of Altria’s international and domestic tobacco businesses to focus exclusively on realizing its opportunities and addressing its challenges. Accordingly, we believe the spin-off will build long-term stockholder value.

As a result of the spin-off, each Altria stockholder will receive one share of PMI common stock for each share of Altria common stock held as of 5:00 p.m. Eastern Time on " " the record date. The distribution of PMI shares will take place on " ".

Altria [has received] a private letter ruling from the Internal Revenue Service and an opinion of counsel that the distribution of PMI common stock to Altria stockholders will qualify as a tax-free distribution for United States federal income tax purposes. You should, of course, consult your own tax advisor as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state, local, and foreign tax laws, which may result in the distribution being taxable to you.

If you sell your shares of Altria common stock prior to or on the distribution date, you may also be selling your right to receive shares of PMI common stock. You are encouraged to consult with your financial advisor regarding the specific implications of selling your Altria common stock prior to or on the distribution date.

Following the spin-off, Altria common stock will continue to trade on the New York Stock Exchange under the ticker symbol “MO” and PMI common stock will trade on the New York Stock Exchange under the ticker symbol “ .” You need not take any action to receive your shares of PMI common stock. You do not need to pay any consideration for your shares of PMI common stock or surrender or exchange your shares of Altria common stock.

The attached information statement, which is being mailed to all Altria stockholders, describes the spin-off in detail and contains important information, including financial statements, about PMI.

We look forward to your continued interest and support.




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