Few Wall Street firms failed to get a piece of today's mammoth
Beyond lead underwriters
Salomon Smith Barney
Credit Suisse First Boston
J.P. Morgan Chase
Deutsche Banc Alex. Brown
Morgan Stanley Dean Witter
all took part in the deal. This has led to a dearth of commentary on Kraft, the maker of Altoids and Vegemite. Analysts whose firms are underwriting an
IPO cannot talk about its prospects until 25 days after the offering. Even firms not involved in the underwriting will often keep mum: A report on Kraft's prospects by
analyst Romitha Mally was withdrawn last week, reportedly over potential legal issues, and she refrained from further discussing the company.
But Wednesday's $8.7 billion offering also shackled analysts for Kraft parent
. The big tobacco company retains an 84% stake in the company known for Waffle Crisp cereal and Mr. Freeze freezer bars. The spinoff certainly matters for Philip Morris shareholders -- there's about $20 worth of Kraft in each share they hold -- but in the weeks leading up to the deal, analysts for the tobacco company said nary a word about what the offering might mean. Pull up recent research on Philip Morris and you'll get excruciating analysis of what the recent court loss in California means, but not a word on Kraft.
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Until today, that is, when Bonnie Herzog, analyst at lead underwriter Credit Suisse, broke the silence by initiating Philip Morris with a buy rating and a $67 price target, based in part on the share price of the purveyor of Cheese Whiz and Sanka. Herzog reckoned that Philip Morris' non-Kraft businesses are worth $47 a share. To that she added $20 worth of Kraft -- based on a $31 offering price, Philip Morris' 84% Kraft stake is worth $45 billion, divided by 2.23 billion Philip Morris shares -- embedded in each share of Philip Morris. At midafternoon, Kraft was up 28 cents at $31.28, and Philip Morris was off 67 cents at $47.90.
One can see why Herzog, who wasn't available for comment, would be anxious to take account of the Kraft offering in her research. After all, to talk about Philip Morris and not mention its big stake in the company that brings us Jell-O is a little silly. But then again, putting a price target on Philip Morris based in part on the offering price for Kraft may overstep it a bit. You could argue that Herzog's analysis assumes that $31 really
a reasonable price for the company. Her opinion on Philip Morris, that is, included an implicit opinion on Kraft.
It might have been better to wait another 25 days before doing that.