MO Altria Group Inc

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 $100 billion-plus 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 11, 2016 16:15 ET (20:15 GMT)

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