Essay About Philip Morris Companies And Kraft Inc

Philip Morris Companies and Kraft Inc – Merge and Acquisition
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Philip Morris Companies and Kraft, Inc.Case #1 Student questions – Philip Morris Companies and Kraft, Inc1. Why is Kraft a takeover target?2. Should Philip Morris buy Kraft?3. Does the market think this offer is good for Philip-Morris?4. Does the market think this offer is good for Kraft shareholders? Why?Set of eventsKraft stock price around $60 in early October of 1988October 18th, Philip Morris offers $90 cash for each share of KraftKraft management does not like this–argue that offer is too low–on Oct. 24th, Kraft management proposes a restructuring- argue it is worth $110 per shareQuestion #1: Does the market think this offer is good for Philip-Morris?Market did not like Philip-Morris’s prior diversification movesStock price goes down on October 18th by $4.50 per share (-5.5% abnormal return) -+shareholder loss of $1.3 bil.Question #2: Does the market think this offer is good for Kraft shareholders? Why?Stock price goes up to above $90Kraft shareholders are much richerPotential for–improved offer–a restructuring plan–an offer by another potential acquirerQuestion #3: What does the market think of the restructuring plan?Stock price goes up to $102 -+ market believes restructuring will not occur or is not worth $110 a shareWould a restructured Kraft be worth much more than the old $60 per share- appears to be a well-run companyMore likely explanation: market believed that plan would result in a new or improved offerWhat are the potential economic gains from this acquisition?Kraft management can be used to help run General Foods division of KraftIf there are synergies, the market believes Philip Morris is overpaying-+ Kraft shareholders benefit by the synergy value plus someWhat happened?Oct. 28th, Mr. Maxwell and Mr. Richman meet at 10 p.m. Maxwell offers $104 per shareRichman asks for $106 per share Maxwell agrees at 1 a.m.Richman becomes vice-chairman of merged company Kraft headquarters to remain in Illinois for at least 2 yearsAn alternate view of the Dynamics:  Diversification to Mitigate Expropriation in the Tobacco Industry, Beneish, Jansen, Lewis, Stuart, Journal of Financial Economics 89.1 (July 2008) pp. 136-157