Well you never would believe
Where those 'baccy pushers got to
They're pushing junk food now
To the who-ole earth
And what do you think
This addiction amounts to?
A lot of coronaries
And a mess of new girth
>Tobacco Giant Philip Morris Buying
>Melinda Fulmer, Los Angeles Times
>Monday, June 26, 2000
> Philip Morris, the parent company of Kraft Foods,
> yesterday agreed to buy cookie and cracker giant
> Nabisco Holdings for $14.9 billion, making the
> largest U.S. food company even more powerful
> with brands on virtually every supermarket aisle.
> The announcement comes at a time when many of
> the largest players in the slow-growth food business
> have been looking to consolidate in order to cut
> costs, boost sales and add clout with grocery
> retailers. At the same time, the transaction signals
> that Philip Morris, the world's biggest tobacco
> company, is moving to get out from under the legal
> cloud of smoking-related lawsuits that have been a
> drag on its food business.
> Adding Nabisco's top-selling brands such as Ritz
> crackers, Oreo cookies, Grey Poupon mustard and
> Planters nuts will give Kraft a total of 73 brands
> with sales of more than $100 million each, and
> aggressively push into the snack sector, one of the
> fastest-growing categories in the food business.
> ``This creates a food dynamo on par or better than
> (the world's largest food company) Nestle,'' says
> analyst John McMillin of Prudential Securities in
> New York. ``And it gets Kraft some growth brands
> that can travel.''
> In an ironic twist, the proposed acquisition would
> put Nabisco, which up until a year ago was part of
> tobacco company RJR Nabisco Holdings, back in
> the stable of a tobacco company. However,
> analysts say Philip Morris may eventually spin off
> the food business as a separate company.
> Last year, RJR Nabisco Holdings separated its
> Nabisco Group from its tobacco company, which
> was spun off as R.J. Reynolds Tobacco Holdings
> Under the terms of the deal, Philip Morris will pay
> $55 a share in cash, a 6.5 percent premium to
> Nabisco Holdings' close on Friday, and assume $4
> billion in debt. Following the deal, Kraft plans to sell
> less than 20 percent of the new food company's
> stock in a public offering and use the proceeds to
> pay down the debt.
> Analysts say the proposed stock sale signals Philip
> Morris' intent to separate its food business from its
> tobacco business, which is already facing billions in
> legal damages from smoking-related litigation and
> other lawsuits that are pending. By spinning off
> highly profitable Kraft, Philip Morris would allow its
> food business to be free of the depressing effects of
> the anti-tobacco litigation and regulation.
> ``It's an important strategic change in thinking,'' says
> Martin Feldman, an analyst at Salomon Smith
> Barney Inc. in New York. ``Previously Philip
> Morris had resisted any change in its corporate
> The announcement was a two- pronged transaction.
> Philip Morris said it would also sell Nabisco's
> parent company, Nabisco Group Holdings -- a
> cash-filled corporate shell -- for $9.8 billion, or $30
> a share, to R.J. Reynolds Tobacco, its cigarette unit
> that was spun off last summer.
> In purchasing Nabisco Group Holdings, RJR will
> profit to the tune of $1.5 billion, analysts said,
> without taking on any additional debt or facing any
> increased risk of tobacco litigation. ``They are
> basically buying cash at a 15 percent discount and
> taking on their own risk of litigation,'' said Feldman.
> The acquisition comes at a time of rapid
> consolidation in the global food industry. Just three
> weeks ago Unilever agreed to buy Bestfoods for
> $24.3 billion. ConAgra, whose brands include
> Butterball turkeys and Orville Redenbacher
> popcorn, agreed last week to pay $1.6 billion for
> International Foods, maker of Chef Boyardee pasta
> products. Kraft, maker of Post cereals and Oscar
> Mayer meats, and Nabisco Holdings had about
> $34.9 billion in combined sales in 1999, about the
> same as Nestle SA and Unilever, once it completes
> its purchase of Bestfoods.
> Despite the huge clout the acquisition gives Kraft, it
> won't likely arouse antitrust concerns, analysts say,
> because both companies have very different
> products. Nabisco is the dominant player in the
> cookie and cracker business, having a 35 percent
> and 47 percent share of those categories
> respectively, while Kraft dominates in the cheese
> business and owns other popular dinner- time
> brands such as Kraft Macaroni and Cheese, Stove
> Top Stuffing, Minute Rice, Jello and Maxwell
> House coffee.
> However, it will allow the company to cut costs and
> operate more efficiently than its competitors,
> important since sales growth in the food business
> has slowed to a rate of 2 percent to 3 percent each
> Annual cost savings from the deal could surpass
> $400 million in 2002, and increase to about $600
> million by 2003, Philip Morris said.
> ``The combination of Kraft and Nabisco will create
> the most dynamic company in the food business
> both in terms of absolute earnings levels and
> revenue and earnings growth rates,'' said Geoffrey
> C. Bible, chairman and chief executive of Philip
> Morris in a statement.
> The cost savings won't, however, likely translate
> into greater savings for consumers at the checkout
> line, company officials say. It will only bring them
> new products.
> Nabisco Group, which owns 80.6 percent of
> Nabisco Holdings, put both companies up for sale
> in April after financier Carl Icahn initiated his fourth
> bid in five years to wrest control of Nabisco Group.
> Icahn is the biggest individual shareholder in
> Nabisco Group at 9.6 percent.
> THE DEAL
> 1999 sales: $8.268 billion 1999 net income: $357
> million 1999 employees: 50,700 Leading products:
> Oreo, Ritz, Life Savers, Grey Poupon, Milk-Bone
> pet snacks
> PHILIP MORRIS
> 1999 sales: $78.596 billion 1999 net income:
> $7.675 billion 1999 employees: 137,000 Leading
> products: Marlboro, Benson & Hedges, Jell-O,
> Maxwell House, Oscar Mayer, Miller
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