Philip Morris Reportedly in Talks to Shed Baking Unit

Philip Morris Cos. is reportedly seeking as much as $1 billion for most of its baking division, which includes Entenmann’s cookies and cakes and Freihofer’s breads.

The food and tobacco conglomerate declined to comment on the report in the Wall Street Journal, which said final bids on the $1.2 billion in businesses up for sale are due in less than two weeks.

But analysts who follow Philip Morris said a sale would fit with the company’s recent resolve to shed low-margin businesses.

They said the baking business, which is under Kraft General Foods, requires a large capital investment in trucks to keep moving fresh products to market.

“It would not surprise me in the least to see Philip Morris divest it. They have become very return-oriented,” said John McMillin, who follows the food industry for Prudential Securities.

He said Philip Morris did well with fat-free bakery products a few years ago but has seen competition from Nabisco Holdings Corp. and others intensify in that segment in recent years.

McMillin said he suspects Philip Morris will get $700 million to $800 million for the businesses if it decides to sell them.

Another analyst, Emanuel Goldman of PaineWebber in San Francisco, said sales volume was flat last year for Entenmann’s, but he added, “It has been a good operation and one of the great brand names in baked goods in the United States.”

He said he could envision a $1-billion price for the division. “It could be a terrific add-on,” Goldman said.

He noted that Philip Morris has sold more food businesses than it has purchased in the past year or so, including its food service business.

“A sale would be consistent with Philip Morris’ stated strategy of only having those businesses that can provide good longer-term growth,” Goldman said.

Kathy Knuth, a spokeswoman for Philip Morris’ Kraft division in Northfield, Ill., said the company’s policy is not to comment on rumors or speculation.

Kraft accounted for about half of Philip Morris’ $65 billion in revenue last year with brands such as Velveeta cheese products, Oscar Mayer meats and Maxwell House coffee.

The baking division also includes Oroweat breads, Lender’s bagels and Boboli Italian bread. But the Journal said Philip Morris may have elected to hold on to its fast-growing bagel business.

It said possible bidders include CPC International Co., Unilever and Sara Lee Corp.

In late trading on the New York Stock Exchange, Philip Morris shares closed at $76, up $1.25.