Kraft Stock Offering Raises $8.68 Billion
Kraft Foods Inc., the No. 1 U.S. food maker whose products include Oreo cookies, raised $8.68 billion on Tuesday in the second-biggest U.S. initial public stock offering.
Northfield, Ill.-based Kraft sold 280 million shares at $31 each, the top of its increased price range, in the largest IPO since AT&T; Wireless Group (ticker symbol: AWE) raised $10.6 billion in April 2000.
The company boosted its asking price from an expected range of $27 to $30 as investors flocked to buy shares in the company, offering to buy seven times as much stock as was available.
“This is clearly a dominant company and investors have got the chance to buy into it that they haven’t really had before,” said Simon Burton an industry analyst at Banc of America Capital Management.
The 87-year-old foods company, which earned $2 billion last year on products that include such brands as Australia’s Vegemite and Norway’s Freia chocolate, is attractive at a time when the economy is slowing and many companies are reporting declines in earnings, investors said. Kraft projects earnings will rise by 14% to 16% this year.
Some 60 Kraft brands, including Tang drink mix and Kraft Macaroni & Cheese, each earn revenue of more than $100 million a year. Of its 25 most profitable products, 23 are No. 1 in their categories and more than 99% of U.S. households have at least one Kraft product in their home, according to A.C. Neilsen research cited by Kraft.
Kraft’s market capitalization is about $54 billion, placing it in the top 60 companies in the U.S. and about the same size as Merrill Lynch & Co. (MER) and Hewlett-Packard Co. (HWP).
At $31, Kraft is valued at about 19 times its estimated 2001 cash earnings, analysts said, compared with an average 18.3 times for other food companies.
“I don’t think the valuation seems unreasonable,” Burton said. “Their power at the retail level differentiates them from every other food company.”
Still, that premium leaves less room for a rise when the shares begin trading today, investors said. “The market will probably give this a premium given the quality of the company, but I doubt it really has a lot of performance in it,” said Tim Ghriskey, an equity manager at Dreyfus Corp. “It’s obviously not going to get a big initial pop.”
Until now, investors wanting ownership of Kraft had to buy shares of its parent, Philip Morris Cos. (MO), the largest U.S. cigarette maker, which is the subject of billion-dollar smoking-related lawsuits. Philip Morris will retain an 84% stake in Kraft and 98% of the voting power.
Philip Morris shares rose 58 cents to $49.10.
Kraft shares are to begin trading today on the New York Stock Exchange under the symbol KFT.
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Biggest U.S. IPOs
Kraft Foods’ $8.68-billion initial public offering, priced at $31 a share late Tuesday, ranks as the second-largest U.S. IPO. The biggest IPOs by dollars raised:
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Ticker Amount raised Name symbol Date (billions) AT&T; Wireless AWE 4/26/00 $10.62 Kraft Foods KFT 6/12/01 8.68 UPS UPS 11/9/99 5.47 Conoco COC 10/21/98 4.40 Goldman Sachs GS 5/3/99 3.66 Agere Systems AGR 3/27/01 3.60 Charter Commun. CHTR 11/8/99 3.23 Lucent Tech. LU 4/3/96 3.03 MetLife MET 4/4/00 2.88 Infinity Broad. IFNY 12/09/98 2.87
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Data exclude closed-end funds, foreign-issuer IPOs and units.
Sources: Bloomberg, CommScan
