Philip Morris Companies And Kraft, Inc Harvard Case Solution & Analysis

Q#01: Why is Kraft a takeover target?


Kraft is a company that is involved in the food sector and it also has many well-known brands. Moreover, the sales that have been generated from the operations amount to almost $9.9 billion. This is considered to be an increase of almost 27% since 1986. There is also an increase in the net income of Kraft, which has shown an increase of almost 11% and in monetary terms, it is equal to $435 million.

On the other hand, Philip Morris is mainly involved in the sale of cigarettes, which is a completely different industry sector in which it is operating. However, it is worth mentioning that nowadays, there has been a significant increase in the food industry. There are thousands of major competitors who have captured a large proportion of the market and have the ability to restrain others from entering this industry by introducing quite adopting different tactics.

The increase in the level of sales made by Kraft showed an interesting trend due to the rise by almost 27%. Moreover, there is an expectation that the food industry is going to expand in the upcoming future. Philips is currently involved in the tobacco business and the business that it is willing to enter is different from Kraft’s activities. If Philip Morris is going to make an acquisition of Kraft, then it is going to result in strengthening the position of Philip because of the popularity of Kraft’s brand.

Despite this, the food industry can provide several opportunities, which can be availed by Philip to maximize its chances by going for the merger with Kraft. The other reasons that made Kraft an attractive takeover target are Seven Seas, Miracle Whip and lastly, the Kraft Salad dressings. Also, Kraft had a very good record of its merger with several other firms like Dart.

If Philip becomes successful in making an acquisition with Kraft, then it has the highest chance that after the merger, it may become a larger food company across the globe. Moreover, also due to the international recognition of Kraft and its branded products, Philip Morris and Kraft can reach those market segments globally, which they may not be able to reach if they would be operating alone.

As per the exhibits, it can be seen that the sales revenue is growing by a significant percentage of almost 40.26%. It is also worth mentioning that Kraft is perfect for Philip Morris based on their opinion. General foods were acquired by Philip, whose position can also be strengthened if Kraft it is added to it. However, in order to avoid a decline in the tobacco industry, Philip is moving into un-related diversification.

By looking at the Financials of Kraft, it can be seen that in the last six years, its earnings per share are showing an increase of almost 75% relatively and by having the ability to keep paying its shareholders; it may be able to bring a further increase in its stock price. Moreover, in the past six years, the stock price of Kraft has increased from $22.83/share up to $48.25/share, respectively.

Furthermore, Kraft seems to be mainly relying on the earnings, which it has generated from the sales of its shares and also settles its debt obligations. Hence, the company that is relying mostly on its retained earnings shows better future prospects therefore, by following this approach, it will become an attractive target as other major companies in the market will consider taking over in order to generate sufficient returns for its shareholders. By taking all of the above factors, Philip Morris has made a hostile takeover bid for Kraft however, it should consider going through complex arrangements and therefore, there is a need to proceed with great care.

Philip Morris Companies And Kraft, Inc Case Solution

Q#02: Should Philip Morris buy Kraft?


As it is clear from the information that in order to expand the business and generate high returns for its shareholders, Philip Morris has taken a step to make an acquisition of Kraft. Moreover, there are several factors that should be taken into account before entering into a merger acquisition. Despite this, Philip Morris has made an offer to make an acquisition of the shares at a price of $90/share......................

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