PHILIP MORRIS

Topics: Net present value, Time, Present value Pages: 4 (1128 words) Published: December 9, 2014

Joseph Taj
Ahn Nyguyen
J Yu
Fin 423
Haddad
Nov 18, 2014

Philip Morris Inc.: Seven Up Acquisition (A)

This case discusses Philip Morris Inc. intentions to acquire the Seven-up Company in an effort to diversify their consumer goods. The decision has already been made, however they must decide on an offer price to buy out the company. This report will discuss PM’s acquisition strategy and its appropriateness, along with whether or not 7up fits the criteria of PM’s strategy. The report will further discuss the methods used to determine the maximum amount that Philip Morris should pay for 7up, while also going into detail about the minimum price 7up should accept as a buyout.

Philip Morris Acquisition Strategy

Philip Morris bases its acquisition strategy off several principles that it follows. They seem to have a corporate strategy that attempts to diversify its operations by adding new and different businesses to the company. PM targets large and strong companies within various markets and industries. These companies should be able to greatly contribute to PM as a whole. PM derives most of its business from the cigarette industry, which generates large and steady cash flows for the company. This allows them to acquire companies that may not have high returns in the beginning, but seem to have a hopeful long term potential. They are allotted the ability to take a hit in the short term without completely ruining themselves. Further, PM is attracted to companies that produce consumer goods and expect to utilize their already existing marketing expertise to make their new acquisition grow even more than is expected. These conditions mean that PM is seeking the acquisition of companies that are significant players within a strong and attractive consumer goods market. Does 7up fit the strategy?

These criteria match with the acquisition of 7up. First, PM seeks to diversify existing business operations. Acquiring 7up would allow PM to enter the...
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