CHICAGO Altria Group Inc. (MO.N) said on Wednesday it plans to spin off its 89 percent stake in Kraft Foods Inc. KFT.N on March 30, completing the long-awaited separation of the maker of Oreo cookies from the Philip Morris tobacco companies.
The timing of the spinoff is earlier than some analysts had anticipated, and means new Kraft Chief Executive Irene Rosenfeld will have less time to set her strategy for the foodmaker before it becomes independent.
Rosenfeld is expected to announce details of that strategy at an analysts' conference in three weeks.
Kraft shares fell as much as 2 percent before rebounding after it posted earnings that met analysts' estimates, while Altria shares dropped as much as 1.4 percent before trimming much of the loss.
Under terms of the spinoff, Altria stockholders would receive 0.7 share of Kraft for each Altria share.
Most analysts had expected the spinoff to be completed in the second quarter.
"I would say it's good for Altria," Charles Norton, portfolio manager of the Vice Fund that holds Altria shares, said of the spinoff date. "They're being rather aggressive with their timetable. I think it's good for Altria, not so good for Kraft shareholders."
The spinoff has been awaited since Altria management first raised the idea more than two years ago.
The company held off until it received favorable rulings in several large tobacco liability lawsuits. Altria's predecessor, Philip Morris Cos. Inc., acquired Kraft in 1988 and issued a portion of Kraft shares to the public in a 2001 initial public offering.
Those shares were priced at $31, about 10 percent below where they traded on Tuesday. Over the same period, Altria shares have risen 79 percent as its tobacco business reaped major legal victories and grew overseas. Kraft's food business has struggled with high costs and sluggish sales.
HITTING THE STREET
Altria said a "when-issued" public market would be established on the New York Stock Exchange before the record date of the spinoff for trading Altria shares without the Kraft holding. Altria also said its attorneys have issued an opinion that the spinoff would be tax free to the company and its shareholders.
Altria said it would adjust its dividend after the spinoff so shareholders who also keep their Kraft shares would receive the same aggregate dividend as they did before the spinoff.
The spinoff will put about 1.5 billion more Kraft shares in the market. Some fund managers who hold Altria may have to sell the Kraft shares if they do not also meet the funds' profiles.
For example, Altria is a component of the Standard & Poor's 500 index .SPX and Kraft is not. A Kraft spokeswoman said last week the company expected the stock to be added to the index.
Altria's Chairman Louis Camilleri is due to step down as chairman of Kraft's board on March 30, but will continue to serve on the board. Rosenfeld will be elected to the additional post of chairman at that time, Kraft said. Two other Altria executives will leave Kraft's board, and Kraft's board will also appoint a lead director from among the independent members of the board.
One thing that could delay the spinoff would be if attorneys for plaintiffs in a tobacco liability lawsuit seek an injunction to try to stop the spinoff, arguing that Kraft's assets could still be needed to pay legal judgments if Altria loses.
"We clearly believe there would not be any merit to such a challenge," Camilleri said in a conference call with analysts.
Such a move could put short-term pressure on Altria shares, Bonnie Herzog, tobacco analyst at Citigroup Investment Research, said in a research note.
"We strongly believe the company will ultimately succeed in defeating any injunction attempt," she said.
Anticipation of the spinoff helped lift shares of Altria, a member of the blue-chip Dow Jones industrial average .DJI, about 21 percent in the past year, with the stock reaching an all-time high of $90.50 on January 11.
Altria shares were down 29 cents to $87.25 on Wednesday, while Kraft shares were up 2 cents at $34.81 on the New York Stock Exchange.
(Additional reporting by Jessica Wohl and Herbert Lash)