Philip Morris’ announcement that it would acquire Nabisco found favor with analysts, journalists and shareholders alike. Marking the merger as the AOL-Time Warner of the food industry, journalists were quick to praise the acquisition and wasted no time in speculating on the implications for a partial IPO of Kraft Foods in 2001.
Philip Morris’ announcement that it would acquire Nabisco found
favor with analysts, journalists and shareholders alike. Marking the
merger as the AOL-Time Warner of the food industry, journalists were
quick to praise the acquisition and wasted no time in speculating on the
implications for a partial IPO of Kraft Foods in 2001.
Articles researched by CARMA International relayed that most journalists
could not get over the sheer size of the merger. It was discussed as a
landmark for consolidation in the food industry, after Unilever’s
acquisition of BestFoods and speculation of mergers involving smaller
industry players, such as H.J. Heinz. Philip Morris appeared happy to
encourage that kind of talk. ’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,’ said
Philip Morris CEO Geoffrey Bible (Investor’s Business Daily, June
Speculation of a full spin-off of the combined Kraft and Nabisco
abounded following reports of Philip Morris’ plans to sell about 20% of
Kraft in 2001. Investors were rumored to support separating the food
business as a way to protect Kraft’s profits from tobacco litigation,
but journalists more often cited analyst reports that the spin-off would
increase shareholder value. ’The company is setting itself up for an
eventual spin-off of the Kraft-Nabisco food business. (And that) would
be an absolute home run for Philip Morris,’ predicted Salomon Smith
Barney analyst Martin Feldson (The Wall Street Journal, June 26).
Many reports highlighted Nabisco’s value to Kraft. Philip Morris execs
pointed out that Kraft’s share of the snack market would more than
double because of the acquisition. A number of journalists discussed
Nabisco’s presence with retailers and the effect that will have on
Kraft’s sales strength.
While analysts more often suggested that Kraft might become a separate
entity, Philip Morris denied the speculation: ’The IPO is not a
forerunner to a spin-off of the food business. Nabisco fits our
portfolio perfectly, and we knew we wanted it,’ stated Bible (Richmond
Times-Dispatch, June 27).
Media reports also discussed how Philip Morris could work wonders for
the Nabisco brand. The parent company’s size and wealth were reported as
yet another reason why the merger is a good match for both companies, as
Nabisco’s brand can be expanded further through Philip Morris’ larger
advertising and marketing budgets.
A few articles suggested that Philip Morris pursued this acquisition to
further distance itself from the tobacco industry and to shield the
company from litigation. But Philip Morris denied such speculation, and
those reports were few and far between.
Proactive efforts on the part of Philip Morris were partially
responsible for the slant of most news stories away from the tobacco
industry and towards the food industry. The company’s CEO consistently
told the press that Nabisco is a good fit for Philip Morris and Kraft,
and that the merger has nothing to do with tobacco litigation. In fact,
Bible was quoted in over half of the articles that CARMA researched.
Combining a strong spokesperson with consistent messaging proved a
successful M&A recipe for Philip Morris.
- Evaluation and analysis by CARMA International, Media Watch can be
found at www.carma.com.