The ‘New” Altria When-Issued Impact on the DJIA (MO, KFT)

The when-issued status has received very little coverage this week on what may be such a large issue.  This also clears the way for the other spin-offs after Kraft (KFT) has been officially spun-off.  This one will actually have implications on Dow Jones Industrial Average component stocks because the DJIA is actually a price-weighted index rather than a market cap weighted index like most others.  As of a snapshot at 1:22 PM EST. Altria (MO) was at $85.43 and the WHEN ISSUES shares (MO-WI) were listed at $64.25.  This won’t result in any major changes, but those with higher prices will see their weightings rise in the index. 

The only two DJIA stocks that have a price higher than the current $85.43 are the following:
Boeing (BA) $90.17
IBM (IBM) $93.78

But there are more with a higher price than "today’s" WHEN ISSUED price of $64.25, so here is that list:
ExxonMobil (XOM) $70.95
3M (MMM) $75.31
American Intl Group (AIG), barely $67.81
United Technology (UTX), barely at $64.80

The components that are "very close" in price but still under the MO-WI shares are as follows:
P&G (PG) at $61.66
J&J (JNJ) $61.10
Caterpillar (CAT) $63.66

All of these will see their weightings change in the index, or at least the ones with higher prices will for sure.  This will have a minimal impact and shouldn’t be a drastic change, but with the ETF’s and other "Dow-Trackers" it is worth noting.

Altria’s board of directors voted on January 31, 2007, to authorize the Spin-off of all shares of Kraft Foods (KFT) to Altria’s shareholders. The distribution of the approximately 89% of Kraft’s outstanding shares owned by Altria will be made on March 30, 2007, to Altria shareholders of The Record Date as of 5:00 p.m Eastern Time on March 16, 2007.  Altria will distribute approximately 0.7 of a share of Kraft for every share of Altria common stock outstanding as of the Record Date, based on the number of Altria shares outstanding on that date. Immediately following the distribution of Kraft shares, Altria intends to adjust its dividend so that Altria’s shareholders who retain their Kraft shares will receive, in the aggregate, the same dividend amount that existed before the transaction.  No action is required by Altria shareholders to receive their Kraft common stock, and Altria shareholders will not be required to surrender any Altria shares or pay anything, other than any taxes due on cash received in lieu of fractional share interests.  The Spin-off will be tax-free to Altria and its shareholders for U.S. Federal income tax purposes, except for any cash received in lieu of a fractional share of Kraft stock.

Altria’s 52-week high is $90.50.  This will also free up the rest of that float in Kraft shares and should remove what has been a perpetual overhang in KFT shares.  It has traded as high as almost $44.00, but it came out at $30.00 in 2001 and that current $31.00 is reflective of dividends.  Now that we have the WHEN-ISSUED Altria shares (MO-WI) we can see what the exact impact is going to be.  KFT has a market cap of $50.85 Billion and the unadjusted market cap for MO regular shares is roughly $178.9 Billion.

Jon C. Ogg
March 13, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.