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Long wait for Altria's specific plans to divest Kraft shares may be nearing an end

Monday, January 29, 2007

NEW YORK -- Last October, Altria Group Inc. triggered one of the busiest trading sessions of its shares in the past year just by announcing it planned to disclose a timeline for the divestment of its majority stake in Kraft Foods.

This week, investors are expecting to learn details of the plan that created that late October burst of trading activity and that analysts say could break the food and tobacco company into as many as three parts.

On Wednesday, the company is expected to announce the timing for distribution of its 88.6 percent stake in Kraft to its own shareholders. It is an event that analysts and investors have been anticipating since the restructuring plan was disclosed more than two years ago in November 2004.

The path for Altria's announcement was cleared by court decisions in July and October in two major class-action cases. The first was favorable for the company while the second was not, but both contributed to a more stable litigation environment, which ultimately led the company to set Wednesday as the day it would announce when the share transfer would occur.

Morgan Stanley analyst David Adelman said he does not believe the plan will face any serious legal challenges.

"Investor enthusiasm for the anticipated Kraft Foods spin-off is understandable in light of its significant strategic logic and shareholder value creation potential," Adelman wrote in a research note released Friday.

Once Altria announces the stock dividend, the company has 120 days to complete it. That means the Kraft shares are likely to be released to investors, and potentially to the market, sometime before the end of May.

Kraft and Altria, which also owns Philip Morris USA, Philip Morris International and a 28.7 percent stake in the brewer SABMiller, will announce fourth-quarter and year-end profit results Wednesday.

Philip Morris USA is the biggest cigarette maker in the nation and holds nearly half of the total market, selling the Marlboro, Virginia Slims, Parliament and Basic brands.

Northfield, Ill.-based Kraft Foods Inc., the second-largest food and beverage company in the world, sells products such as Kraft cheese, Maxwell House coffee, Toblerone chocolates and Ritz crackers.

Altria chief executive Louis Camilleri said in November that the timing of the Kraft divestiture depended both on litigation and the readiness of Kraft Foods CEO Irene Rosenfeld to achieve strong and predictable growth. She is scheduled to outline her plans next month.

There has also been speculation that Altria could separate its domestic and international tobacco businesses into stand-alone companies.

The domestic tobacco business also stands to gain from legislation that is expected to be introduced within weeks that would allow the U.S. Food and Drug Administration to regulate certain aspects of the manufacturing, distribution and sale of cigarettes.

Sen. Edward Kennedy of Massachusetts and Rep. Henry Waxman of California, both Democrats, are expected to introduce the legislation for a third time, and it is given a better chance of passage since Democrats control both the House and Senate. Its passage may restrict advertising, which could hurt smaller companies trying to win new customers and help Altria strengthen its position as market leader, some rivals argue.

Altria disagrees that the bill is designed to help any single company.

The company's shares are trading near 52-week highs. Altria shares rose 15 cents to close at $88 on Friday on the New York Stock Exchange. They have traded in a 52-week range of $68.36 to $90.50.

Kraft shares, meanwhile, fell 22 cents to close at $34.54 Friday on the NYSE. They have traded in a 52-week range of $28.43 to $36.67.


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