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Kraft Foods (KFT) says its board has approved the spin-off of its North American grocery...

Kraft Foods (KFT) says its board has approved the spin-off of its North American grocery business. The spin-off will be complete on October 1 through a pro rata dividend of all outstanding shares of Kraft Foods Group common stock it owns to its shareholders of record as of the close of business on September 19. Each shareholder will receive one share of Kraft Foods Group common stock for every three shares of Kraft Foods common stock held.
Comments (8)
  • azcowboy50
    , contributor
    Comments (3) | Send Message
     
    More odd-number share positions to keep track of. A legacy of of the old PM. Oh well!
    14 Aug 2012, 11:48 PM Reply Like
  • Mike Tango
    , contributor
    Comments (41) | Send Message
     
    Being new to the game please excuse my ignorance. I understand the "one for three" spin off, i.e. 75 shares @ 1 for 3 = 25 "New Kraft" and 75 shares for Mandalez. What I don't know is: What will be the approximate share price of each on the day they hit the market? I understand that whatever that "opening bell price" is, it will soon change (up/down) based on market sentiment. I'll get my answer on 1 OCT, but I'd like to do some pre-spin off planning of funds to do some "round out" buying. Simple formula? Any help would be appreciated.
    15 Aug 2012, 05:57 AM Reply Like
  • romilar
    , contributor
    Comments (625) | Send Message
     
    Wish I could help on the formula Mike,I would like to have more info to.Is this spin off not like the reverse split in DUK lately?
    15 Aug 2012, 08:58 AM Reply Like
  • Mike Tango
    , contributor
    Comments (41) | Send Message
     
    Romilar: When C (CitiGroup) did a reverse split it was 20 for 1. I had 200 shares and got 20 in return. The share price went from +/-4.00 to 40.00. The market price soon tanked and is slowly climbing back. The KFT deal is a spin off (different animal) and neither my broker nor the KFT Stock Service company (Wells Fargo) can tell me what the market price formula is. Solve for V if : A=75 x 40.00 and B=25 x (40.00-V) or some such equation. I know, I should have stayed awake in High School Math back when, but that was 45 + years ago!
    15 Aug 2012, 05:55 PM Reply Like
  • romilar
    , contributor
    Comments (625) | Send Message
     
    Thanks Mike,brother are you and I ever in the same -same.I am and have always been short algebra 1,with no plans to change that in the future.My gut tells me the price of KFT shares will drop when this spin occurs.Perhaps wait and see before adding is best.
    Some days it feels like I dug my fox hole behind enemy lines....Oh well.
    16 Aug 2012, 11:43 AM Reply Like
  • jessebedi
    , contributor
    Comment (1) | Send Message
     
    It seems to me that if you own 120 shares of Kraft now, you will own 40 shares of Kraft grocery company and 80 shares of the other company. Kraft is valuing grocery company at half the market value of the other company.Total value of the combined companies should remain unchanged, in theory. Whether that will happen or not is debatable.
    19 Aug 2012, 01:44 AM Reply Like
  • nicthu
    , contributor
    Comments (47) | Send Message
     
    No, 120 shares of KFT will net you 40 shares of KRFT and 120 shares of MDLZ. As to the value of each company, a recent SEC filing for KRFT lists its Total Assets - Liabilities around $16.6B, while one for KFT (of which KRFT is currently a subsidiary) shows $36.2B. So theoretically MDLZ will be $19.6B, ignoring whatever debt they decide to move around before the spin. Therefore, with currently known data we're looking at a ratio of about 46% KRFT + 54% MDLZ. If the closing price for KFT on Oct. 1st is V and you have X shares, your market value is X * V. Then the split occurs and you end up with X shares of MDLZ and X/3 shares of KRFT (assume X is integrally divisible by 3), totalling the same market value, with each of those "halves" having the respective ratio to your total (again, theoretically). Hence your X MDLZ shares should be worth X * V * 54%, and your X/3 KRFT shares should be worth X * V * 46%. Solving for each new share price gives you MDLZ = V * 54% and KRFT = 3 * V * 46%. For example, if V = $40.50, you're looking at MDLZ opening at around $21.87 and KRFT opening at around $55.89. Not sure why they cranked up one of the prices; it probably has to do with the way institutional investors look at what stocks they find attractive.
    19 Aug 2012, 05:26 AM Reply Like
  • nicthu
    , contributor
    Comments (47) | Send Message
     
    I just came upon the pro-forma balance sheet for KRFT that includes the additional $4B of debt that was moved over after June 30, as well as other liabilities to be assumed.  These bring its Total Assets - Liabilities down to $4.3B, which means MDLZ will be a $31.9B company.  That changes our ratios significantly, to 12% and 88%.  And our equations become MDLZ = V * 88% and KRFT = 3 * V * 12%.  So the new estimated share values for a $40.50 close become $35.64 and $14.58.  If you take KRFT's Total Equity (pro-forma) of $4.3B and divide by the 591MM shares they expect to issue, you get a book value of around $7.28 per share, or a P/B of around 2.  Dividing the $14.58 by the pro-forma annual earnings per share of $2.44, you get a P/E of around 6.  Finally, taking "the equivalent of $0.64 of the existing $1.16 annual dividend per share paid by" KFT that is expected to be paid by KRFT, multiplying by 3 * 591MM KFT shares outstanding, and dividing by 591MM KRFT shares to be issued, gives an annual dividend per share of $1.92, or a yield of around 13%...I must have miscalculated somewhere!
    21 Aug 2012, 12:53 AM Reply Like
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