Philip Morris Will Buy Jacobs Suchard : $3.8-Billion Deal Will Create Huge Coffee, Candy Giant

Philip Morris Cos. will acquire the Swiss coffee and chocolate giant Jacobs Suchard AG in a deal valued at about $3.8 billion, the companies announced today.

The combination, which will link Suchard with Philip Morris’ Kraft General Foods International unit, will create one of the largest coffee and confectionery companies in the world.

Under the agreement announced in Zurich, Philip Morris will acquire Colima Holding AG, which holds a 60% stake in Suchard. Colima is owned by Suchard Chairman and Chief Executive Klaus Jacobs, whose stake in Suchard has been valued at about $1.4 billion at current exchange rates.

Philip Morris, through Colima, will then launch a cash tender offer for all the publicly traded Suchard shares. The Suchard board has recommended that shareholders accept the offer.

Not included are certain assets that the Suchard board has agreed to sell to Jacobs. Those assets are described by the companies as “not completely (fitting) in the new structure.” They include Suchard’s Canadian subsidiary, its E. J. Brach Inc. candy subsidiary, its industrial chocolate business and equity interests in certain foreign banks.

“This is a major opportunity for all of the parties--consumers, customers and employees--to build one of the best global coffee and confectionery businesses,” said Jacobs, who will continue as Suchard’s chairman but not its chief executive.

Philip Morris spokeswoman Alice McGillion said Suchard will operate as a separate company within Kraft General Foods International. Last year Kraft General Foods International’s revenues from European operations topped $3 billion.

The Suchard acquisition “will permit us to more effectively compete throughout Europe with excellent brands and broad distribution and manufacturing capabilities,” said Hamish Maxwell, chairman and chief executive of Philip Morris, the tobacco and foods conglomerate.

Rumors that Suchard was a takeover target have been circulating for weeks on the Swiss stock market, where Suchard shares have been pushed higher in active trading. Details of the deal surfaced Thursday in an article that appeared today in the Swiss weekly financial newspaper Cash.

According to Cash, Klaus Jacobs has amassed a personal debt of nearly $500 million since he bought out his siblings’ interests in the company last year.

In addition, the company has experienced management and marketing difficulties at its Brach unit, which ran up an operating loss of $50 million in 1989. The loss at the U.S. unit weighed on Suchard’s group profit, which fell 10% last year to $194.6 million on sales of $4.7 billion.

In addition, Suchard confirmed in April that it was considering slashing about 3,000 jobs--or 19% of its work force--in an effort to cut costs.

Among Suchard’s prominent confectionery products are Tobler, Toblerone, Cote d’Or, Milka, Suchard and Night and Day.