The Altria Mystery: Split Up Or Acquire?

By Douglas A. McIntyre Published Jan 30, 10:58AM EST

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It is very old news that Altria (MO) will spin off its Kraft (KFT) food operations to the public. But, there is much debate about what happens next.

Recent comments in the Financial Times would indicate that Altria would take its tobacco operations and break them into two divisions, one domestic and one international. In the last quarter (10-Q), domestic tobacco operations showed little growth compared to the previous year with revenue going from $4.7 billion to $4.8 billion. But, the international tobacco segment, while larger, was not a growth engine either.Revenue rose from $12.1 billion to $12.7 billion. Operating income at the international operations actually dropped slightly.

The lack in growth in both international and domestic tobacco at Altria would argue for keeping them together to leverage manufacturing and marketing scale and prevent having two corporate cost structures. A split up might have legal advantages due to the tobacco health lawsuits in the US. But, most of those are behind the company.

The other path would be to buy other tobacco companies and use Philip Morris’ scale to drop costs. Bloomberg has recently reported that this is the more likely path and that targets might include UST (UST) or Imperial Tobacco (ITY). The news report quotes both Deutsche Bank and Gardner, Russo & Gardner analysts.

That may make the smaller tobaccos a buy.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.