Update: Philip Morris Agrees to Acquire Nabisco Holdings for $14.9 Billion

Updated from 4:29 p.m. EDT

Philip Morris (MO) said on Sunday that it agreed to buy Nabisco Holdings (NA) for $55 a share in cash, or about $14.9 billion, plus the assumption of $4 billion in debt.

Philip Morris plans to combine Nabisco with its Kraft Foods unit and then sell shares in the unit to the public. It expects to sell less than 20% of the unit and will use proceeds to pay down debt from the Nabisco Holdings acquisition. Philip Morris expects the Nabisco deal to close by October and then expects the IPO in early 2001.

Nabisco Holdings, which closed Friday at 51 5/8, is 80.6% owned by Nabisco Group Holdings (NGH), whose sole asset is the Nabisco Holdings food business. Nabisco Group agreed on Sunday to be acquired by R.J. Reynolds Tobacco (RJR) after the Philip Morris deal closes. RJR will pay $30 a share in cash, or about $9.8 billion. Nabisco Group closed Friday at 25 9/16.

The Philip Morris/Nabisco Holdings deal will add to cash earnings per share, or earnings per share excluding special items, immediately after it closes, Philip Morris said. It's expected to add to reported earnings per share in 2002.

"The acquisition of Nabisco coupled with our plans for an IPO of what will be the world's most profitable food company is truly compelling from a strategic, financial and shareholder value perspective," Geoffrey Bible, Philip Morris' chairman and CEO, said in a statement. "The IPO will underscore the value of our tremendous food assets and will preserve our flexibility and financial wherewithal to enhance Philip Morris' shareholder value. We firmly intend to continue rewarding our shareholders with our share repurchase and dividend programs."

New York-based Philip Morris expects that combining Kraft and Nabisco will produce $400 million in cost savings in 2002, with that figure rising to $600 million by 2003.

The bidding for Nabisco had been heated. According to The Wall Street Journal, Philip Morris' bid beat a joint effort from Danone (DA) and Cadbury Schweppes (CSG). They offered $49 a share, the Journal reported. France's Danone even tried to bring in H.J. Heinz (HNZ) to bolster its bid at the last minute, the newspaper said on its online edition.

The food business is the midst of major consolidation. For instance, Bestfoods (BFO) agreed earlier this month to be acquired by Unilever (UN).

Meanwhile, Winston-Salem, N.C.-based RJR said the Philip Morris deal will leave Nabisco Group with $11.8 billion in cash. After buying Nabisco Group in the fall, RJR expects its net proceeds will be $1.4 billion to $1.5 billion.

"This acquisition provides R.J. Reynolds Tobacco Holdings with additional opportunities to significantly enhance shareholder value, further strengthen our balance sheet and invest in our business," Andrew Schindler, RJR's chairman and CEO said in a statement. "We will be evaluating the best use of the cash acquired through this transaction in the months ahead."

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