Altria Could Receive a Multi-Billion Dollar Payoff

Altria could be on the verge of selling its holding in SABMiller, which would be a billion dollar payoff for the company.

Jul 17, 2014 at 9:22AM

Shares of Altria (NYSE:MO) have been on a roll during the past few months, and for good reason, since Altria could be about to receive a game-changing payoff as SABMiller (NASDAQOTH:SBMRY) once again becomes a bid target.

The holding
Altria has held a share of SAB for decades, and actually the holding was in place before Altria came into existence. Indeed, before Philip Morris International and Altria split, Philip Morris owned Miller Brewing, which South African Breweries bought for $5.6 billion in stock and assumed debt at the end of May 2002. This transaction created the SABMiller we know today .

At the time of the deal, Philip Morris, which also owned the majority of Kraft, received 430 million SAB shares, or around 36% of the new SAB, along with 25% of voting rights and three director seats on SAB's board.

Altria acquired its other alcohol interest, Ste. Michelle Wine Estates, when the company bought out smokeless tobacco maker UST Inc in early 2009 .

Since the initial transaction, Altria's stake in SAB has dropped to around 27.1% as dilution has had an effect over the years. SAB has acquired almost 50 companies in the last decade, which would explain some of the dilution.

Today, the SAB stake is worth approximately $25 billion and chucked out an income of $991 million for fiscal 2013. But Altria could be set to receive a huge payoff for this stake.

Plenty of chatter
For around a decade now, the City of London has been filled with chatter that SAB could soon receive a takeover bid. SAB's suitor can be none other than larger peer Anheuser-Busch InBev due to the size of the deal.

With a market capitalization of just under £54 billion, or $92 billion, only A-B Inbev, with a market cap of €135 billion, or $183 billion, would be able to stump up the cash for the bid  .

Rumors suggest that A-B Inbev could pay a 30% premium for SAB's shares for a buyout price of around $120 billion, (Altria itself is only worth $84.6 billion at present) and Altria would be entitled to $35.5 billion of this -- before taxes.

A deal of this kind would undoubtedly be a game-changer for Altria. However, other rumors circling the city imply that SAB could be in talks to merge with the world's largest spirit maker, Diageo (NYSE:DEO).

Poison pill
SAB wants to remain independent, so according to some market commentators the brewer is now contemplating a tie-up with Diageo, which would give SAB access to Diageo's prized Guinness beer business and avoid a takeover by A-B Inbev.

Analysts at Barclays estimate that a tie-up of the two beverage giants would create a $170 billion business with annual free cash flow of approximately $8.5 billion. What's more, the combined group could save more than $700 million per annum by combining its global distribution networks.

Of course, this deal would also be extremely lucrative for Altria, possibly more so than the outright acquisition of SAB by A-B Inbev due to the tax implications involved .

As of yet, it is not clear how much of the SAB-Diageo combination Altria would own, although Altria's income from the duo would surge. I should say as well that these are only rumors at present.

Bottom line
So all in all, there are now plenty of rumors that SAB could be about to spring into action. The two options are a buyout or a merger with Diageo, and both would result in a huge payoff for Altria.

The best course of action would be for SAB and Diageo to merge, as this would create a gigantic alcoholic beverage producer and the value of Altria's holding in the entity would skyrocket. On the other hand, a buyout by A-B Inbev would mean that Altria would receive a chunk of cash, but the tax implications would be concerning.


Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Rupert Hargreaves owns shares of Altria Group. The Motley Fool recommends Diageo (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers