”Philip Morris - Kraft” Case
Nurettin Y¨cesu (10516099) - Pınar Dilhan Eldemir (10652007) u April 25, 2011
In this case, we will analyse how a hostile takeover creates beneﬁts for both parties. The hostile takover approach can be considered as ”taking over a company with a hostile manner” but with the oﬀers and deals, it becomes a solution to many diﬀerent structures within the company. The decisionmaking through a case as this requires experienced, rational management skills to take the right position with a right choice. The one of the world’s biggest packed food company, Kraft Foods Inc. has so many innovations and mergers on the same sector. Kraft has been started to work on the cheese sector and generated many enterpreneurships of their own sector. This shows us how Kraft is a proﬁtable company and their management tries to stimulate the market share of the company which is reaching the top. Also they are considered that one of the biggest prime company in the world. Mostly, the products of Kraft are based on packed food. Their well-known brands are: Cracker Barrel Natural Cheese, Miracle Whip salad dressing, Velveeta process Cheese, Breyers, Philadelphia Cream Cheese, Parkay and numerous others. While the food industry is on its way to the rise, Kraft generated a power in the institutional food market and create a value on manifacturind and marketing. They also created a strategy to diversify the ﬁrms and sectors related food market into the core business line such as dairy foods, snack foods and convenience foods and beverages. Kraft was successful in their industry and has acquired many ﬁrms which are in the similar business line like international, domestic and consumer food. However Kraft has decided to make an acquisiton with an ﬁrm which 1
has unrelated products. They merged with Dart Industries which is founder of Duracell Batteries brand in 1980. Kraft and subsidiaries of Dart operated independently. Perhaps, it would not bring a success for their ideally survival. That company established in 1902. Preliminary carees of Justin Dart has been in the retail drug business and he has generated one of the largest drugstore in his domestic area. He has made some diversiﬁcations and changed name to Dart industry due to acquisitions. Dart industry is perfect ﬁt for diversiﬁcation plans of John Richman. Unfortunately, it has not been as Richman’s plans. Probably, it was Richman’s failure and unforeseeable.
The ”Tender Oﬀer”
John Richman has claimed that long-term investment and short-term returns has been bringing a signiﬁcant value to the Kraft. They have been trying to growing up in the long-term. Therefore they have been sacriﬁcing their short-term proﬁt to make long-term investments. On the other hand, the company was being evaluated wrongly by the stock exchange. As we see in Exhibit 2, long-term debt has a dramatically increase between 1986-87 years. Long-term debt has an increased value from $237,7 millions to $895.3 millions. The reason why Philip Morris is willing to takeover Kraft Inc. lies beneath diversiﬁcation concept. Kraft is a perfect ﬁt for Philip Morris in their opinion. As we said above, Kraft was a major power in their track. The best management team was belong to Kraft and Philip Morris was not adequate to run together with its own General Foods subsidiary. Shortly, General Food was in need of qualiﬁed management. Before negotiations, Kraft has really eﬃcient growth rate and investments. Furthermore, Kraft has been containing many well-known brand regarding commercial, international and customer food and of course was a major participant in international markets. General Food might have beneﬁted from opportunities of Kraft and strenghtened. In Exhibit 3, International food sales are shown as $1.172,7 millions in 1983 and $2.334.8 millions in 1987. This growth is 16% roughly. And it included 18% of total sales. We assumed that the volatility of percentage...
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