After listening to the conference call 1/31/07 and viewing Altria's - Kraft spinoff web
page. I took a look at some basic numbers. currently Mo has a p/e of about 16 however BTI
British American Tobacco and ITY International Tobacco Group both have p/e ratios of about
30. after the distribution of kraft according to the example given on Altria%u2019s web
site Mo shares will have a share price of about $63 per share given its current trade
price. Given the forward looking earnings given during the call of between $4.15 / share
and $4.20 / share and given that it was clear to me from the call that these are
conservative estimates that even take in into account government regulations in Germany
and Japan that may or may not go through if you take the conservative estimate of $4.15
per share then give it the multiple it deserves for a being a straight tobacco business
(30) that gives you a price target of $124.50 if this is a truly conservative estimate and
earnings are greater than the $4.20 per share then you could have a $130 stock, however
lets take a conservative look and a use a 20 multiple and you get $83. Conclusion this
stock is cheap. chances of getting a 30 % gain after the distribution look good just for
MO so if you buy the stock before the split you basically get a KFT as a bonus.

Thanks Ryan. I should've thought to visit the site. Anyways, I did and it breaks it down
really well for anyone else who might be interested.

I think a separate Kraft puts General Mills in play not only for Kraft to consider but
other companies trying to beat Kraft to the punch. General Mills would give Kraft a
greater presence in Europe and Latin America. It has a 20B marketcap, not too large to be
taken over. There would probably be an issue with Post cereal and maybe some other brands
with reguard to anti-trust laws.

I think we all wonder about this. I have heard that the KFT shares will be under pressure
by MO holders, stating that there may be a sell off. This arguably could drive up MO
price in the short term. From a long term perspective, I would argue that the KFT
spinnoff would help MO by allowing the company to be more aggressive with buybacks and
possibly even act as a catalyst to further spinnoffs, Miller, etc....fueling more freedom
for MO buybacks....thoughts?

All of this can be found on Altria.com. They have a breakdown of the stock price break up
as well as how dividends will be split up.

MY understanding is that Altria's stockprice will be cut to around the high 50's/low 60's
depending on the market cap at the time of the spinoff. I arrived at this by subtracting
the current Kraft marketcap value (57B) from Altria as whole (183B). Then I divided by
the number of outstanding Altria shares. Also, Altria's dividend will be $1 less
reflecting the removal of Kraft, however if you keep both stocks it will be as if you
still received the old dividend. Each company, therefore, will have the freedom to raise
their respective dividends on their own, resulting most likely in a benefit to
shareholders.

Cohen,
Cramer mentioned it briefly tonight during the show but it was kinda unclear how it was
really going to go. Hopefully, my info will be available tomorrow.

The only way it really makes sense in my head is that what the P/E multiple at the end of
the day before the split will be applied to Altria's 2006 earnings less Kraft. In their
earnings release I think they did a reconciliation that brought that number to $4.05 EPS
for 2006. Then for every MO share you'd receive roughly 0.70 shares of KFT (which I would
then sell). The hope would be that MO has a decent move before the spin-off so you have a
positive return on MO plus the spun-off shares. Together, these would be worth more than
the original investment. That process makes sense theoretically to me. I'm hoping Cramer
talked about it tonight on Mad Money which I'll be watching at 11. If not, I'll probably
ask tomorrow on one of the realmoney.com blogs and if nobody posted an answer here, I'll
update with whatever info I get.

I have about the same question as I was really thinking about buying Altria but I'm not
sure how the Kraft spin-off would affect my purchase down the road.

I own shares of Altria and most people know they announced the spin-off of kraft today. My
question is, since MO will no longer include earnings from Kraft, will the share price
somehow adjust to reflect that? Will altria trade down to reflect the proper multiple for
its new earnings w/o KFT or will the shares be repriced the day of the spin off? Any help
would be appreciated since this the first spinoff I'll be a part of.

Last edited on: 01-31-2007 06:40 pm