Blog: See Kraft spin

Catherine Sleep | 4 September 2006

Those hoping for news this past week of the highly anticipated Kraft Foods spin-off from its parent group were left disappointed as Altria kept mum on its plans following a board meeting on Wednesday (30 August).

Altria chief executive Louis Camilleri proposed separating the holding company’s food and tobacco businesses two years ago, suggesting that three tobacco industry lawsuits would have to be settled before such a move could be carried out.

Last week’s board meeting attracted the attention of analysts and investors because it was the first since a federal court handed the tobacco industry a partial victory in the last of the three cases identified by Camilleri. The court found that the tobacco industry had deceived the public but refused to dish out the US$14bn in fines sought by the Justice Department.

While Altria remained silent on its intention for its 85% stake in Kraft, the tobacco giant did increase its quarterly dividend by 7.5% to $0.86 per share (Kraft having raised its dividend by 8.7% to $0.25 per share a day earlier).

In the short-term, a spin-off would likely push Kraft shares down as many Altria stockholders are expected to dispose of their stake in the food company and flood the market. In the longer term, it is widely believed that a separation would allow each company to function more effectively on a standalone basis. Free from the taint of tobacco and the constraints of operating under Altria, Kraft would be able to complete a more comprehensive and far-reaching reorganisation. This could extend to changes in the company’s structure and strategic direction.

It is now unclear when a timetable for Kraft’s separation from Altria will be made public. But, some analysts have suggested that with nothing barring the way - and Kraft clearly champing at the bit - we won’t be waiting too long for an announcement.

In an investor note, Bonnie Herzog, food industry analyst for Citigroup, wrote: "There was no announcement of a Kraft spin, but absolutely anticipate one in the near term or in the next one to two months.

"Currently, no impediments exist for a spin, and we do not believe the company is confined to a small window of opportunity in which it must jump the gun," Herzog continued.

All eyes now turn towards the next scheduled meeting of the Altria board, which is due to be held on 25 October. Keep posted for more on this in the coming weeks.

Katy Humphries, just-food news editor


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