Philip Morris To Acquire Nabisco
NEW YORK (AP) - A little over a year after getting out of the cigarette business, the nation's No. 1 cookie and cracker maker is back with Big Tobacco.
Philip Morris Companies Inc. (NYSE:MO - news), the world's largest tobacco company and parent of Kraft Foods, said Sunday it has reached an agreement to purchase Nabisco Holdings Corp. for $14.9 billion plus the assumption of $4 billion in debt.
Philip Morris chairman and chief executive Geoffrey C. Bible said in a statement that the purchase at $55 a share will greatly expand the company's food offerings.
``The combination of Kraft and Nabisco will create the most dynamic company in the food industry, both in terms of absolute earnings levels and revenue and earnings growth rates.''
Kraft and Nabisco together produced revenue of $34.9 billion last year, Philip Morris said. The combined food company is expected to be second in the world only to Nestle of Switzerland, which has annual sales in excess of $35 billion.
The purchase comes as Philip Morris' domestic tobacco business is facing a potentially huge punitive damages in the tens of billions of dollars judgment in a class-action suit in Florida.
Smokers' attorney Stanley Rosenblatt said before court convened Monday that the purchase shows the tobacco companies are ``loaded with money.''
But Bible said in an interview that the parent company's purchase of Nabisco and the tobacco litigation against the tobacco unit are separate issues.
``I don' t think it is at all relevant because the suit down there is with our domestic cigarette company and that's what they (the Florida jurors) have to focus on in their deliberations,'' he said.
Nabisco Holdings, which makes Ritz crackers, Snackwell's snacks, Oreo cookies and Life Savers candy, is 80.6 percent owned by Nabisco Group of Parsippany, N.J.
Nabisco Group said Sunday that after shedding the Nabisco Holdings unit, it would sell itself and its proceeds from the Nabisco sale to R.J. Reynolds Tobacco Co. for $9.8 billion.
Ironically, R.J. Reynolds Tobacco had been a subsidiary of the group - previously known as RJR Nabisco - before it was spun off in March 1999 as a separate publicly traded entity. It makes Winston and Camel brand cigarettes.
Philip Morris, which produces Marlboro, Benson & Hedges and Parliament brand cigarettes, also owns Miller Brewing Co. and such brands as Jell-O, Maxwell House, Oscar Mayer and Post cereals. The purchase fills a gap in its food portfolio, which had not included cookies and crackers.
The deal will add 18 brands to its existing 55 brands.
Investors were pleased by the deals. Shares of Nabisco Holdings rose $1.125 to $52.75, on the New York Stock Exchange, where shares of Nabisco Group rose $1.25 to $26.813, Philip Morris rose $3.438 to $27.063 while R.J. Reynolds rose $1.75 to $28.625, also on the NYSE.
At a news conference Monday, Bible said the combination should yield $400 million in cost savings by 2002 and $600 million by 2003.
But he declined to pinpoint where those savings would come from, saying it was too early to say how the deal would affect Nabisco jobs or plants. He added in past plant closings, his company has shown a ``terrrific record of compassion.''
The only category in which the companies have competing brands that ``we'll have to deal with'' is Kraft's Jell-O and Nabisco's Royal desserts, Bible said.
The announcement of the sale ended a bidding war that had involved financier Carl Icahn as well as a venture of France's Danone SA and Britain's Cadbury Schweppes PLC (NYSE:CSG - news).
The Danone-Cadbury offer reportedly was for about $50 a share. Danone, a leading manufacturer of cookies and crackers, had hoped for an American foothold with the deal, while Cadbury was more interested in Nabisco's candy holdings.
James M. Kilts, president and chief executive of Nabisco, said the transactions would fulfill management's pledge of last May to maximize its value to shareholders.
Philip Morris revealed that after the transaction is completed in October, it will begin work on an initial public offering of up to 15 percent of the stock in the newly combined food company. Bible said at the news conference that Philip Morris expects it will raise between $5 billion and $10 billion by selling a 10 percent to 15 percent stake in the foods business. He said such an IPO ``is not a forerunner to the spinoff of the food business,'' but was aimed at retaining the company's financial flexibility.
The IPO was expected in early 2001, with proceeds used to retire some of the debt incurred in the Nabisco purchase.
Icahn, the biggest individual shareholder in Nabisco Group at 9.6 percent, disclosed Thursday in a federal filing that he had offered $28 a share for the whole company, or $8.3 billion.
Icahn, who had made three failed efforts to replace the Nabisco Group board over the past few years, goaded the board to put Nabisco Group on the market when he suggested in late March that he wanted to increase his stake in the company to 40 percent through a $13-a-share offer.
On April 3, the Nabisco Group board said it had authorized management to explore the sale of the company or its stake in Nabisco Holdings.