沃顿 高级公司理财学Kraft09.pptVIP

Finance 726: Philip Morris and Kraft * Market reaction to the Philip Morris bid for Kraft 10/17 Philip Morris trades at $100 10/18 (on the day of the bid) it falls 4.5% to $95.5 while the SP rises by 1.1% with a beta of .88 Philip Morris would have been expected to rise by about 1% when the SP rose by 1.1% shareholders lost 5.5% Finance 726: Philip Morris and Kraft * Market Reaction to the Philip Morris bid for Kraft the loss of $5.50 on each of the 237 million shares implies a loss of $1.3 billion to shareholders Finance 726: Philip Morris and Kraft * Philip Morris’s Diversification Strategy Investments in Beer and Foods not successful return on assets much lower in these divisions than in cigarettes (See Exhibit 7) over 50% return on assets in cigarettes in ‘87 6.6% return on assets in food in ‘87 For comparison, Kraft earned a 23.64% return on assets in its US consumer foods division, a 9.45% return on assets in its US commercial foods division and a 22.97% return on assets in its Internationals foods (see Exhibit 3) Finance 726: Philip Morris and Kraft * Philip Morris’s Diversification Strategy (continued) 10.12% return on assets in its beer division in ‘87 this was the highest in 4 years Its earlier investment in 7-up had been even less successful earning around 2% until it was sold in 1986 after a $50 million write down (it was initially bought in 1978 for $528 million) Finance 726: Philip Morris and Kraft * Philip Morris’s Diversification Strategy (continued) Philip Morris had been able to pursue this diversification strategy using the cash flows from its cigarette business Finance 726: Philip Morris and Kraft * Exhibit 12 Projections Finance 726: Philip Morris and Kraft * Exhibit 11 Projections From Exhibit 11 Finance 726: Philip Morris and Kraft * Exhibit 11 Projections (continued) Businesses to be sold “represented 45% of estimated 1988 revenues and 19% of estimated 1988 operating profit” From Exhibit 11 estimated 1988 revenues are $11,200 million 55%