Case Study Phillip Morris Acquires Kraft Case Study

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Philip Morris Acquires Kraft: An Overview

(1)When Philip Morris, Inc. moved to acquire Kraft, Inc., it did so for several reasons: first and foremost, PM has made a lion's share (80%) of its fortune in tobacco and tobacco products. Putting aside for the moment the obvious (and numerous) health problems that such products are known to cause, and seemingly despite them, PM continues to manufacture the leading brand of cigarettes, Marlboro-and continues to sell its products internationally at a greater rate than ever before. But its management was not totally naive about the future, either: in America, tobacco has fallen at least somewhat out of favor, and may in fact someday be completely illegal. Therefore, much like R.J. Reynolds and other major tobacco companies have done and continue to do, PM leadership looked around for an even "surer thing" than tobacco and found it-in food. It's an obvious choice. As Hamish Maxwell puts it, "People may ultimately stop drinking or smoking, though I don't believe it, but you can bet your life they will keep on eating." So, the PM choice was to buy a food business while their profits from tobacco were still big enough to do it right.

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(2) Since Philip Morris's acquisition of Kraft made it the largest consumer product firm in the world, it would increase Kraft's sales and earnings in several ways. Many of Kraft's primary brands are foods now labeled high-cholesterol (cheese, ice cream, milk)-ironically enough, also a health risk much like tobacco-and therefore were beginning to feel a real pinch from negative sales pressure. Kraft's growth pattern has been slow and steady, led by a CEO whose area of expertise, and interest, is primary balance sheets and the bottom line. By contrast, Murphy and Maxwell of PM have established themselves as "marketing guerrillas." Murphy, as president of Miller Brewing, was responsible for creating a Lite beer brand and market; he did much the same thing for Seven-Up's "no caffeine" marketing plan (which is now mimicked by other soft drink makers). Between them, Murphy and Maxwell are known for building brands and increasing market share, something Kraft needed to do; ironically enough, the balance sheet takes care of itself once market shares increase and stock price and values go up-evidence being that Kraft stock shot up from a $60 per share price….....

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