UNITED STATES: TOBACCO GIANT AND KRAFT FOODS OWNER PHILIP MORRIS ANNOUNCES TAKEOVER OF NABISCO HOLDINGS

Record ID: 637616

  • Title: UNITED STATES: TOBACCO GIANT AND KRAFT FOODS OWNER PHILIP MORRIS ANNOUNCES TAKEOVER OF NABISCO HOLDINGS
  • Date: 26th June 2000
  • Summary: NEW YORK CITY, NEW YORK, UNITED STATES (JUNE 26, 2000) (REUTERS) WIDE OF MEDIA CONFERENCE SV: (SOUNDBITE) (English) GEOFFREY C. BIBLE, PHILIP MORRIS CHAIRMAN AND CHIEF EXECUTIVE OFFICER SAYING: "The combination of Kraft and Nabisco creates a real global leader in the food industry. Scale is a real advantage in this industry. As Kraft has proven, it increases both efficiency and effectiveness, leverages our service to the trade and benefits consumers in numerous ways."
  • Embargoed: 11th July 2000 13:00
  • Keywords:
  • Location: NEW YORK CITY, NEW YORK, WASHINGTON, D.C. AND UNIDENTIFIED LOCATIONS, UNITED STATES
  • Country: USA
  • Topics: Industry
  • Reuters ID: LVACSTNKMPJC8925AVZ3Q594LD1U
  • Story Text: Philip Morris, owner of Kraft Foods, has announced it will buy Nabisco Holdings, maker of brands such as Oreo cookies and Ritz Crackers.
    The complicated deal, which values Nabisco Holdings at 55 U.S. dollars a share, was announced officially in New York on Monday (June 26) by Philip Morris' CEO Geoff Bible.
    The sale also involves the sale of Nabisco's parent company, Nabisco Group Holdings Corp. to former unit R.J.
    Reynolds Tobacco, for 9.8 billion U.S. dollars.
    The agreements come amid a wave of food industry consolidation. Nabisco had been on the auction block since April and Philip Morris had widely been viewed as the most likely winner. A source originally valued the Philip Morris deal at 15.9 billion dollars.
    Under the terms of the agreements, Philip Morris will acquire all the outstanding shares of Nabisco Holdings, including Nabisco Group Holdings' 80.6 per cent interest in Nabisco Holdings.
    After that sale is completed, R.J. Reynolds Tobacco will acquire all the outstanding shares of Nabisco Group Holdings for 9.8 billion dollars in a deal that values the holding company at 30 dollars a share. The primary asset of Nabisco Group Holdings after the completion of the sale of the Nabisco foods company to Philip Morris will be about about 11.8 billion dollars in cash.
    The acquisition of Nabisco will enable Philip Morris to retain its position as the world's second-largest food company after Swiss giant Nestle. That ranking had been threatened by Unilever's recent deal to buy rival Bestfoods for 20.3 billion dollars, which would have reduced Philip Morris to the Number 3 spot.
    "The combination of Kraft and Nabisco creates a real global leader in the food industry. Scale is a real advantage in this industry. As Kraft has proven, it increases both efficiency and effectiveness, leverages our service to the trade and benefits consumers in numerous ways," Bible told Reuters after the press conference.
    Philip Morris said it plans an initial public offering (IPO) for less than 20 per cent of the newly-combined food operations following the completion of the Nabisco acquisition. Proceeds from the IPO will be used to pay off the 4 billion dollars in Nabisco debt that will be assumed by Philip Morris as part of the deal.
    The sale of both companies was fuelled by an unsolicited takeover bid from financier Carl Icahn who initially sought to buy the holding company. Nabisco eventually put both businesses up for auction and Icahn raised his offer several times, saying last week he could potentially pay 31 dollars a share for the holding company.
    Meanwhile, the food operations drew a host of interested parties. Britain's Cadbury Schweppes Plc. teamed up with France's Groupe Danone to submit a bid of less than 50 dollars a share last week.
    A source close to the situation said the Cadbury-Danone partnership raised its bid several times over the weekend, but offered only about 52 or 53 dollars a share. The Nabisco board then met Sunday to accept the Philip Morris offer.
    The price tag being paid by Philip Morris falls short of many industry expectations, especially as Nabisco had drawn intense bidding interest from overseas suitors. Some industry analysts had pegged a winning bid near 60 dollars a share.
    Shares of Parsippany, N.J.-based Nabisco Holdings closed Friday at 51-5/8 on the New York Stock Exchange, still well above the 33 dollars level at which they had been trading before the company was put up for sale. Nabisco Group closed on Friday at 25-7/16, up 1-7/16.
    The union of the holding company with RJR will essentially put the group's risk of tobacco litigation under one roof.
    Because RJR was once part of the Nabisco holding company both the holding company and RJR were assumed to carry tobacco litigation risk. The tobacco operations were spun off last year as part of a massive restructuring of the company formerly known as RJR Nabisco Holdings Group.
    Martin Feldman watches Philip Morris for Salomon Smith Barney, he said the move shows the company has gained confidence "Kraft Foods, part of Philip Morris made a very very major acquisition of 19 billion dollars worth. It enhances the growth rate of Philip Morris' food business. I think it really shows that the company has a new found confidence in terms of going forward and not being bogged down by the litigation environment"
    The deal is the latest change in ownership for Nabisco which became a symbol of the tumultuous leveraged buyout period in the 1980's and was chronicled in the best-selling book, "Barbarians at the Gate".
    In addition to the Kraft food brand, the Philip Morris division also owns names such as Minute Rice, Jell-O and Stove Top stuffing. Philip Morris also owns a stable of cigarette brands like Marlboro and the Miller Brewing Company.
    The combined Philip Morris-Nabisco is expected to create a company with 1999 pro forma revenues of 86.6 billion. Food revenues from Kraft and Nabisco would total 34.9 billion on a pro forma basis.
    Philip Morris said the deal will yield more than 400 million in cost savings in 2002, growing to about 600 million by 2003. The Nabisco deal is expected to be completed in October and the Kraft IPO is expected to be completed early next year.
    After the deal, Northbrook, Ill.-based Kraft will have a 13 per cent share in the world cookie and cracker market. The Nabisco deal will add another 18 brands to its stable of 55 brands that each generate more than 100 million dollars in annual sales.
    Industry analysts widely expect the food consolidation trend to continue. The race for food deals began a few months ago when Unilever bought Slim Fast and ice cream maker Ben & Jerry's and its hunger for U.S. companies was capped earlier this month by the Unilever deal.
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