Altria better give the money than burn it


A woman smokes a cigarette as she stands on Wall Street in New York on October 8, 2020. REUTERS / Carlo Allegri

NEW YORK, July 20 (Reuters Breakingviews) – Altria (MO.N) may soon have some cash to spend. The $ 87 billion supplier of Marlboro cigarettes sells a wine business for $ 1.2 billion to focus on smokes. But the Billy Gifford-led company still owns a $ 13 billion stake in Anheuser-Busch Inbev (ABI.BR), inherited from the Miller Brewing sale, and may exit in October. The risk is that this will tempt Altria with more bad acquisition choices.

The Richmond, Virginia-based company is working to streamline its buzz portfolio as part of a general industry shift toward smokeless nicotine consumption. It’s selling Ste. Michelle Wine Estates to private equity firm Sycamore Partners for $ 1.2 billion. The company also owns 197 million shares in AB Inbev, the brewer of Budweiser and other consumer beer brands.

But some restrictions on the sale of this stake expire on October 10. Overall, it has not been a good investment for Altria. The value of the stake has fallen by 50% since Altria inherited it in October 2016. So giving up an average investment seems reasonable – and could roughly double Altria’s cash flow.

Which is also the problem. Altria has proven adept at making deals at the wrong time. The company acquired a 45% stake in cannabis company Cronos (CRON.TO) in March 2019. Cronos shares have since fallen by almost two-thirds. Worse yet, Altria took more than $ 11 billion in write-downs on its investment in vaping company Juul Labs, about 90% of what it paid in 2018, after the company got embroiled in lawsuits. judicial.

Transforming a business, like smoking, to cope with changing consumer habits and regulatory vicissitudes is no easy task. Altria’s former international arm, Philip Morris International (PM.N), is leading the charge in smokeless tobacco. Altria sold 103 billion sticks in 2020, a decrease of 7% from two years earlier. But the activity remains attractive, with profits expected to grow by nearly 14% by 2023. And it generates cash: Altria’s dividend yield is above 7%.

Of course, using fresh money from divestments to pay a big dividend or buy back stocks isn’t as exciting for a management team as starting a new business, as Philip Morris did. But at least Altria shareholders could rest assured that their money wouldn’t go up in smoke.

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– Altria announced on July 9 that it would sell its Ste. Michelle Wine Estates to private equity firm Sycamore Partners for $ 1.2 billion. Altria took over Ste. Michelle when she bought smokeless tobacco company UST for $ 10.4 billion in 2008.

Editing by Rob Cox and Marjorie Backman

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