Altria Group’s (MO, Financial) shareholders got positive news this week; the company of Marlboro announced the completion of the Anheuser-Busch InBev (BUD, Financial)-SABMiller (LSE:SAB, Financial) merger.
The deal will bring Altria $5.3 billion pretax cash, which includes proceeds from derivatives used to hedge British pound exposure.
Altria’s 27% ownership and voting stake in SABMiller is converted into a 9.6% interest in Anheuser-Busch InBev, represented by 185,115,417 restricted shares of Anheuser-Busch InBev that Altria received from the merger.
This deal has to be framed in the strategy of Altria to diversify the business, which might affect the sale of smokeable products even though the sale of smokeless products and wine, with which Altria already diversified its portfolio, still represents a small percentage of the company’s total revenue.
"We are very pleased to see the successful completion of this transaction between these two great companies. The transaction allows Altria to continue its participation in the global brewing profit pool as a significant shareholder in AB InBev, and we are excited about the prospects for the long-term value of our investment," said (CEO) Marty Barrington. (Altria’s NR).
The most interesting aspect of this news for Altria’s shareholders is the proceeds of $5.3 billion that the company will use to sustain the payment of dividends. The company is a faithful issuer of a quarterly dividend with Marlboro – the world's best-selling cigarette brand whose sales have not been scratched by decades of messages to raise the public's awareness of the harmful effects of smoking.
Marlboro, the Altria Group’s flagship, consistently holds about 38% of the U.S. tobacco market, an industry that never knew and will never know a crisis, so much so that the company has been able to increase its dividend to its shareholders 47 times in 50 years.
Altria Group is a large company with a market capitalization value that was more than $120.79 billion as of Oct. 12; from 2011 to 2015 the company produced adjusted diluted earnings per share growth at a compounded annual rate of approximately 8.1% (which has been reaffirmed in its long-term financial goals of growing adjusted diluted EPS) and has consistently grown the dividend. Altria Group outperformed the Standard & Poor's 500 by about 37.14% over the last five years.
Analysts’ recommendation is 2. The recommendation ranges between 1 (Strong buy) and 5 (Sell). The average price target of Altria Group is $69.20. On Tuesday the stock closed at $61.99 per share with a volume of 7,260,995 shares traded on the New York Stock Exchange.
As an indication of Altria’s stock you may want to consider $64.07 per share, the average price at which Altria repurchased 2,727,443 shares during the second quarter. By the way the company increased the share repurchase program from $1 billion to $3 billion; completion is expected by the end of the second quarter in 2018.
The stock can also be appraised through a DDM as outlined in this article, taking into account the revised Altria’s 2016 Full-Year Guidance and Long-Term Financial Goals, and the impact of a lower financial cost of the loan principal of Altria on the Weighted Average Cost of Capital (WACC) after the extinguishment of the 67% of its unsecured loan.
Disclosure: I have no positions in Altria Group.
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