Word: kraft
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...Nabisco bombshell broke three days after Philip Morris offered $11.5 billion to buy Kraft. That merger, if consummated, would create the world's largest consumer-goods company: Philip Morris' Marlboro cigarettes, Maxwell House coffee and Miller beer would move into the same corporate basket as Kraft's Velveeta cheese, Parkay margarine and Breyers ice cream...
Philip Morris hopes that its play for Kraft will prove to be pre-emptive -- so attractive that Kraft management will be unable to turn it down. The tobacco and food giant is proposing to buy Kraft for $90 a share in cash, a 50% premium over the $60 price of Kraft stock before the offer. To get a friendly match and outbid other possible suitors, Philip Morris may have to raise its bid to more than $100, according to Wall Street analysts. Says Hamish Maxwell, the Philip Morris chairman: "We're prepared to negotiate this deal...
Philip Morris needs to lessen its dependence on the shrinking tobacco business, which now accounts for 52% of revenues; the Kraft acquisition would bring that level down to 39%. Moreover, Kraft has products like Miracle Whip and Philadelphia Brand cream cheese that have taken up permanent residence in * American refrigerators. Since Kraft products do not compete with those made by Philip Morris' General Foods subsidiary, Philip Morris argues that the merger would pose no antitrust problems...
...Kraft also offers Philip Morris a strong presence in the international markets that provide about a quarter of the food company's revenues. While Philip Morris' cigarettes are widely available throughout the world, its General Foods grocery products are not. Finally, Kraft has a $1.2 billion cash hoard, tempting bait for any raider...
Philip Morris hopes Kraft will not be as resistant to a takeover as Pillsbury, which is fighting a $5.2 billion offer from Grand Metropolitan, a British liquor conglomerate (J&B Scotch and Smirnoff vodka). Last week the company took out full-page newspaper ads that showed the normally cherubic Pillsbury Doughboy with a grim expression and wearing boxing gloves. Warned the ad: "We're not going to sit idly by while an opportunistic British liquor and gambling company tries to buy respectability...