Altria’s Big Pay Day: How A Mega Merger Netted The Company Billions Of Dollars

Altria’s Big Pay Day: How A Mega Merger Netted The Company Billions Of Dollars

Altria Group (NYSE: MO), the parent company of Philip Morris and other cigarette and tobacco brands, is now a major shareholder in the world’s largest alcoholic beverage company, Anheuser Busch Inbev SA (NYSE: BUD).

AB Inbev recently completed its mega $100-billion acquisition of rival SABMiller which counted Altria Group as a major shareholder.  Now that AB Inbev’s acquisition of SABMiller has been finalized and approved, Altria Group said in a press release that it now holds a total of 185,115,417 restricted shares of the newly combined company which represents a 9.6 percent economic and voting interest.

As part of the merger deal, Altria Group also received approximately $5.3 billion in pre-tax cash, including the proceeds from a currency hedge the company established against the British pound.  

Altria expects to record a total estimated pre-tax gain of $13.7 billion, or $4.55 per share.  Nearly the full amount will be recorded when the company reports its fourth quarter results.

In addition, the tobacco-focused company announced that its CEO and President Marty Barrington and its Chief Financial Officer Billy Gifford will join AB Inbev’s Board of Directors.

Altria Group also announced that it will use part of the new cash proceeds from the merger to further expand the company’s stock buyback program.  The company’s Board of Directors approved the expansion of its already existing stock buyback program to $3 billion from its current $1 billion.

Altria expects to finalize its stock buyback program by the end of 2018.

Guidance Update

Altria also maintained its long-term financial grows of growing its earnings per share at an average annual rate of seven percent to nine percent and maintain a dividend payout target ratio of approximately 80 percent of its adjusted diluted earnings per share.

The company also lowered its earnings per share expectations for the full year 2016 to a range of $2.98 to $3.04 from a previous range of $3.01 to $3.07.  However, the revised estimate was attributed to the timing difference between Ab Inbev and Altria’s financial reporting quarters.  Altria will record Ab Inbev’s results on a one-quarter lag basis.

Shares of Altria have gained more than six percent since the start of 2016 and around nine percent over the past year.  Of particular note, the stock also pays a dividend yield just shy of four percent at its current level.