Philip Morris Cleared to Pursue Buyout of Kraft

Philip Morris Cos.’ path to becoming the world’s largest consumer products company appeared clear Monday as federal officials declined to raise antitrust objections to its $12.6-billion purchase of Kraft Inc.

The tobacco and food giant’s lone remaining hurdle is evidently obtaining sufficient shares under terms of its $106-a-share tender offer, which it reaffirmed would expire at 5 p.m. EST Friday.

The company said that about 49.8% of Kraft’s estimated 119.3 million common shares and share equivalents had been tendered as of last Friday, and analysts said they had little doubt that the takeover would be completed.

Previously, Philip Morris valued the transaction at about $13.1 billion but said Monday that it had has found there were fewer common shares and equivalents outstanding than it had expected.

Nonetheless, the acquisition still would be the biggest buyout to date outside the oil business. Only Chevron Corp.’s $13.4-billion takeover of Gulf Oil in 1984 was larger, and that could soon be surpassed as $20-billion-plus bids are being weighed for RJR Nabisco Inc.

The Philip Morris deal would bring well-known Kraft brands such as Miracle Whip salad dressing, Velveeta cheese, Sealtest ice cream and Tombstone frozen pizzas into the same corporate corral as Marlboro cigarettes, Maxwell House coffee, Post cereals, Oscar Mayer meats and Miller beer.

Philip Morris said Monday that the waiting period for the Federal Trade Commission’s review of the takeover had expired Friday.

Asked the significance of that development, Philip Morris spokesman George L. Knox said it meant the FTC had not challenged the deal. “We can proceed with our tender offer,” he said.

In Washington, FTC Director Anna Davis would neither confirm nor deny the Philip Morris statement. She said the commission has a policy of not commenting on such matters unless it has blocked a merger or has granted early termination of the required waiting period for antitrust review.

The size of the deal had raised widespread concern about the possible anti-competitive consequences. Such a company could wield enormous influence over prices, supply networks and advertising, potentially harming consumer interests, critics said.

Philip Morris denied that the merger would be anti-competitive.

In trading on the New York Stock Exchange, Kraft rose 62.5 cents a share to $105.625 and Philip Morris fell 37.5 cents to $95.375.

The takeover agreement announced Oct. 31 would create the world’s largest consumer products company, vaulting Philip Morris past Unilever NV, the British-Dutch concern that had been the largest with 1987 sales of nearly $31 billion.

Philip Morris had $27.7 billion in sales in 1987, while Kraft had revenue of $9.9 billion, giving the combined company a theoretical total of $37.6 billion.

The deal also would solidify Philip Morris’ grip on the top ranking among U.S. national advertisers, according to the trade journal Advertising Age.

Ad Age said Philip Morris spent $1.56 billion on national advertising in 1987, while Kraft ranked 22nd at $400.7 million.