Altria Faces Lower Beer Stake -- WSJ
October 12 2016 - 3:08AM
Dow Jones News
Tobacco company will get 9.6% stake in the merged AB InBev for
its SABMiller holdings
By Tripp Mickle
Altria Group Inc. will receive a smaller share of the newly
enlarged Anheuser-Busch InBev NV than it had expected following the
Belgian brewer's just-completed roughly $100 billion takeover of
rival SABMiller PLC.
The U.S. tobacco company received a $5.3 billion in cash and a
9.6% share of the enlarged AB InBev in exchange for its 27% stake
in SABMiller. That was almost 1% less than the 10.5% stake it has
expected to receive. That is because more SAB Miller shareholders
than expected opted for a cash and share option as opposed to an
all cash offer.
Though its stake in the newly merged company is less than
expected, Altria said it would have two seats on AB InBev's board
of directors. That will allow it to continue using equity
accounting practices to report its share of the brewer's profits as
earnings.
Being able to count the beer business toward earnings helps
Altria diversify its balance sheet at a time when cigarette volumes
have been declining. The SABMiller business contributed at least a
third of Altria's goal of 7%-to-9% annual earnings growth since
2008, and the stake in AB InBev ensures the beer business will
continue to be a meaningful contributor to Altria's results, said
Nik Modi, an analyst with RBC Capital Markets.
Altria's announcement came on the same day AB InBev began
trading as a postmerger company. It is now the world's largest beer
company with an estimated 46% share of global beer profits and 27%
share of global beer volumes.
AB InBev said Tuesday that it completed its planned divestitures
of SABMiller's interest in several businesses, including
MillerCoors to Molson Coors Brewing Co., Peroni and Grolsch to
Asahi Group Holdings Ltd. and the joint venture known as CR Snow to
China Resources Beer Holdings.
The Belgian brewer's deal for SABMiller took roughly a year to
complete and required regulatory approval in the U.S., Europe,
China and South Africa. The deal had to be renegotiated in July
after the value of the British pound sank following the U.K.'s exit
from the European Union.
The fall deflated the value of AB InBev's cash offer for
SABMiller, intended for most shareholders, compared with the
separate cash-and-share offer designed for Altria and the Santo
Domingo family, which owned a combined 41% stake in the British
brewer.
The partial-share option rose in value because AB InBev shares
are priced in euros. The week before the deal closed, the partial
share alternative was worth about 18% more than the cash offer,
according to a financial adviser on the transaction.
As a result, more SABMiller shareholders opted for the
partial-share plan than expected, reducing Altria's and the Santo
Domingo family's expected interest in the postmerger AB InBev.
Although Altria wound up with about 1% less interest in the
Belgian brewer than the 10.5% it expected, the change isn't
significant enough to undermine its goal of 7%-to-9% annual
earnings growth, Mr. Modi said.
Altria said Chief Executive Marty Barrington and Chief Financial
Officer Billy Gifford would represent it on the AB InBev board.
Because of timing differences between Anheuser-Busch's and
Altria's financial reporting quarters, Altria will now record
Anheuser-Busch results on a one-quarter lag. Altria updated its
financial projections accordingly, and expects earnings per share
to be between $2.98 and $3.04, compared with $3.01 to $3.07
previously.
Altria expects to record a pretax gain in its reported earnings
of about $13.7 billion, or $4.55 per share, related to the
merger.
--Austen Hufford contributed to this article.
Write to Tripp Mickle at Tripp.Mickle@wsj.com
(END) Dow Jones Newswires
October 12, 2016 02:53 ET (06:53 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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