Facebook Twitter



The unprecedented, mid-October frenzy of buyout bids has spawned its biggest deal yet, a $13.1 billion buyout of Kraft by Philip Morris that would create the world's biggest consumer products company.

The proposed merger announced Sunday would be the biggest ever between two non-oil U.S. companies and, if successful, would end a short but sharp takeover battle between the two giant food and consumer goods companies.It also would create a $40 billion-a-year company armed with some of America's best-known consumer products, including Philip Morris Inc.'s Miller beer, Marlboro cigarettes, Jell-O and Maxwell House coffee, and Kraft Inc.'s Velveeta, Parkay margarine, Philadelphia cream cheese, Miracle Whip salad dressing and Sealtest ice cream.

That would fulfill Philip Morris' goal of reducing its dependence on revenue from its slowing cigarette business, while making it a tougher worldwide competitor against other giant multinationals.

"As we have stated from the outset, we believe the combination of Philip Morris and Kraft will create a U.S. based food company that will compete more effectively in world food markets," said Hamish Maxwell, Philip Morris' chairman and chief executive.

In a joint announcement, the companies said they had a definitive agreement for New York-based Philip Morris to boost its outstanding tender offer for all ofKraft's outstanding stock to $106 a share from $90.

Kraft shares closed Friday at $96.50, up $2 a share on the New York Stock Exchange. Philip Morris closed down 25 cents at $94.75 a share. In trading Monday, Kraft shares rose $7 to $103.50, while Philip Morris was up $1.75 a share to $96.50.

Kraft, based in Glenvie, Ill., had rejected as inadequate the $90-a-share offer made Oct. 17, and unveiled a defensive restructuring it said would pay its stioclkholders $110 a share in cash and securities.

The restructuring, thought by many to be mainly a bargaining ploy, would haveboosted Kraft's debt by about $12.4 billion, likely forcing it to sell some of its businesses to raise cash for debt payments.

Kraft said Tuesday it would negotiate only if Philip Morris sweetened its offer to at least $110 a share, and insisted it would not be pressured.

A preliminary agreement was reached after negotiations Friday in Chicago. TheKraft board of directors approved it Sunday in New York, Maxwell said.

"Our shareholders are receiving full value, and this merger is the best possible outcome for our employees, customers and the communities in which we operate," said John M. Richman, chairman and chief executive of Kraft.

If completed, the merger would rank behind only the $13.4 billion acquisitionof Gulf Oil Corp. by what is now Chevron Corp. in 1984.

With combined revenue of about $39.5 billion in the year ended June 30, the company would be the world's biggest consumer products maker, outpacing the $30 billion-a-year British-Dutch conmpany Unilever NV, according to industry estimates.

The combination of Kraft and General Foods Corp.,, which Philip Morris acquired in 1985 for $5.6 billion, would produce about $20 billion in annual revenue, making Philip Morris the world's second biggest food company, after Switzerland's $28 billion Nestle SA.