What is the new cost basis for Altria after the Philip Morris International spinoff?

CUWu answered one year ago …

This is a great question! The site obviously hasn't been updated to reflect the spin off (as they said it would) but let's try to figure this out here.

According to Altria's investor information notice on the Kraft spin off, this is what they had to say regarding calculating the tax basis for Kraft shares:

"one possible approach to determining the fair market value of the Altria common stock and the Kraft common stock is to utilize the closing price quoted on the New York Stock Exchange on the day after the Distribution for both Altria common stock, which was $68.22 per share, and Kraft common stock, which was $30.85 per share. Based on such values and the distribution ratio of 0.692024 of a share of Kraft common stock for each share of Altria common stock, 6.16% of an Altria Shareholder's aggregate tax basis in his or her shares of Altria common stock prior to the Distribution should be allocated to such Altria Shareholder's shares of Altria common stock and 23.84% should be allocated to such Altria Shareholder's shares of Kraft common stock (including the fractional share of Kraft common stock for which cash was received)."

So, if we apply the same logic to MO and PM, here's what we'd get:

Closing price of MO 3/31/2008 (first day after distribution): $22.20
Closing price of PM 3/31/2008: $50.58

Since Altria shareholders got 1 share of PM for each share of MO they owned, we don't have to do anything too complex here. Simply add the two prices together and figure out which percentage of the combined number each represents.

$22.20 + $50.58 = $72.78

$22.20 / $72.78 = 30.50% : this is the amount of your cost basis you should attribute to your Altria shares, which means you should attribute 69.50% to your PM shares.

So let's say you originally invested $10,000 into Altria. Now your cost basis for the Altria shares is $3,050 and your cost basis for the PM shares is $6,950.

Hope that helped.