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Philip Morris' Kraft Foods Wins Bidding War to Acquire Nabisco for $18.9 Billion.
Publication: Food & Drink Weekly
Date: July 3 2000
Subject: Financial holding companies, Snack foods
Company: Nabisco Holdings Corp., Philip Morris Companies Inc., Cadbury Schweppes PLC, Kraft Foods Inc.
Product: Cookies & Crackers, Financial Holding Companies, Food & Kindred Products
Location: United States, United Kingdom


"What better combination is there than Kraft cheese and Ritz crackers?" asked Geoff Bible, chairman and chief executive officer, Philip Morris when he announced that Philip Morris Companies Inc. will acquire all outstanding shares of Nabisco Holdings Corp. for $55.00 per share in cash, or $14.9 billion plus the assumption of $4 billion in debt for a total of $18.9 billion. The complicated deal also calls for the sale of Nabisco Group Holdings to its former nit, R.J. Reynolds Tobacco Holdings Inc. for $9.8 billion. That transaction values the holding company at $30 a share.

As part of the acquisition, which Philip Morris expects to be completed by October, Nabisco will be folded into Kraft Foods Inc., the operating food company of Philip Morris. Interestingly, following the combination, Kraft plans to undertake an initial public offering (IPO) for less than 20 percent of the newly combined company. The IPO proceeds will be used to retire a portion of the debt incurred as a result of the acquisition of Nabisco. The Kraft IPO will be completed in early 2001.

Bible said the deal created the "world's most profitable food company." In addition, Bible said with the transaction Kraft will: 1) strengthen its presence m the fast growing snack foods category; 2) become the world leader in cookies and crackers with a 13 percent share, and the leader in the U.S. cookie and cracker categories, with shares of 35 percent and 47 percent, respectively; 3) more effectively meet the needs of its global trade partners; 4) increase its brand leadership by adding 18 brands to its existing 55 brands (each generate more than $100 million in revenue); 5) own over 90 percent of Nabisco's handsome U.S. portfolio of brands; and 6) double its scale in Latin America and strengthen its presence in Asia and in Europe. Philip Morris expects to keep most of the Nabisco brands, although Bible said the company would potentially sell non-core assets. Industry experts have speculated Milk-Bone dog biscuits and treats may be one of the brands to be sold.
Analysts gave the deal high marks, Mostly because the U.S. snack industry is growing a 4 percent-plus rate, much higher than the rest of the stodgy food industry. After years of cost-cutting and job cuts, Nabisco recently regained lost profit margins and growth. Its snack business last year represented more than 80 percent of its $8.3 billion in sales and it holds the world's largest presence in the cookie and cracker market with a 13.3 percent market share. In the United States, Nabisco has a growing 44.5 percent share of the cookie and cracker category, significantly ahead of Keebler, Pepperidge Farm and private label brands. It also is the international cookie and cracker category leader in Canada, China, and several markets in Latin America, including Argentina and Venezuela. And that excludes United Biscuit's number one share position in the UK and Benelux.


Related Content
Philip Morris, Danone and Icahn Make Bids For Nabisco.


The deal came after a bidding war that pitted Philip Morris against a joint bid from European rivals Cadbury Schweppes Plc. and Groupe Danone. In a statement, Cadbury said Philip Morris was able to make the deal at a price that would not have met Cadbury Schweppes' criteria for creating value for its shareowners. Analysts say Cadbury and Danone are better off without the deal, which risked diluting earnings and dragging down their shares. Cadbury and Danone -- which were after a foothold in the world's biggest consumer market to stretch their global reach -- should now look outside the United States for growth, they said. Other food companies such as H.J. Heinz Co. and Campbell Soup Co. also are seen by some as takeover candidates because of their strong brand recognition. However, Heinz's strong ketchup operation may not be attractive enough to fetch a high premium by suitors, and Campbell has seen its U.S. soup sales drop in recent months.

Meanwhile, the European Commission (EC) is expected to review the deal. Under EU regulations, even companies from outside Europe must submit their mergers for vetting by the EC if they have combined worldwide sales of more than $4.67 billion ([epsilon]5 billion).