Wearing a lapel pin showing the usually placid Doughboy sporting boxing gloves, Pillsbury Chairman Philip L. Smith vowed Tuesday that the firm would fight a $5.23-billion takeover bid.
Acting in the shadow of the much bigger proposed takeover of Kraft, Pillsbury directors had voted unanimously to oppose the cash offer by Grand Metropolitan, a giant British food and liquor conglomerate, Smith said.
Grand Met’s offer is “inadequate from a financial point of view,” he said, imploring shareholders to give Pillsbury’s “major revitalization effort” a chance.
Eye on Kraft Bid
By rejecting the offer, analysts said Pillsbury may not only be buying time but also holding out for more than the $60 per share offered by Grand Met.
Analysts said Pillsbury may feel that the company is worth more in light of Monday’s $11.8-billion cash offer by Philip Morris Co. for Kraft, another major food products company. The Kraft bid would represent the second-largest merger in U.S. history.
Philip Morris is offering $90 a share for Kraft, a premium of 50% over Kraft’s previous share price. A few analysts also suggested that Pillsbury and Kraft might consider joining forces to fend off their unwelcome suitors, but no one appeared to be taking that proposal seriously.
In trading Tuesday on the New York Stock Exchange, Pillsbury stock closed at $59, up 37.5 cents. Other food stocks were active, including Kraft--the most heavily traded stock. At the close of trading, Kraft shares sold for $88.25 each, up $28.125 per share.
Grand Met Responds
Grand Met expressed disappointment at the announcement but predicted that it would prevail. “We are surprised that the Pillsbury board of directors has concluded that our all-cash offer of $60 per share is inadequate since our price represents more than 50% over the Pillsbury market price prior to the announcement of our offer,” Ian A. Martin, chief executive of U.S. operations for Grand Met, said in a statement.
“We doubt that Pillsbury’s stockholders will agree with their board’s conclusion. We believe our tender offer should be welcomed not only by Pillsbury stockholders, but employees, franchises and customers.”
The Pillsbury board is reviewing several options to deter Grand Met, including the issuance of a substantial dividend to Pillsbury shareholders, selling an equity interest in one or more of its subsidiaries, or selling a principal asset, according to a filing Tuesday with the Securities and Exchange Commission.
Smith joined Pillsbury last summer after the Minneapolis-based company saw its earnings decline for the first time in 16 years and the former chairman resigned under pressure. In a separate announcement, Smith also named Pillsbury Executive Vice President Jerry W. Levin to the post of chairman of Pillsbury’s ailing Burger King unit.
Industry analysts said it will be difficult to convince shareholders not to accept $60 per share from Grand Met, since Pillsbury stock had been trading around $35 per share before the Oct. 4 offer.
“It’s pretty hard to tell shareholders who have been watching the company do nothing for a year not to take this offer,” said Ron Morrow, managing director of Smith Barney in New York City.
Morrow, who has been following Pillsbury for 15 years, said the company may be exploring some kind of business combination with Unilever, a giant Dutch household products and food company. The company’s U.S. subsidiary is Lever Bros.
A spokeswoman for Lever Bros. said it was against company policy to comment on “street rumors.”
Other foreign companies said to be looking for U.S. food acquisitions are Switzerland’s Nestle AG, which owns Los Angeles-based Carnation Co. Analysts also mentioned Volvo, the Swedish international car manufacturer with food interests in Sweden, as a possible acquisition-hungry company.
Other U.S. targets could be Gerber, General Mills, CPC International, Sara Lee and Quaker Oats, analysts said.
Confidence in Suitor
Several analysts said Grand Met has what it takes to solve some of Pillsbury’s problems.
“Grand Met feels they have the marketing ability to turn around Burger King and improve Pillsbury’s food business,” said Barry Ziegler, vice president of research at Tucker Anthony & R. L. Day Inc. “This is reflected in the price they’ve offered.”
Grand Met, with $10 billion in annual worldwide sales, relies on liquor sales for 51% of its revenue. The London-based company owns a chain of 1,500 British pubs, 1,400 Pearle Vision Center stores and makes Alpo pet food, among other things.