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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information