PM History/2 - Legacy Tobacco Documents Library

PM history/62
I
of '88 was launching his disastrous effort to take his co . private . HM
paid $13 billion £or Kraft & now became 51% food co .//other targets now
being contemplated, of which Pepsico is biggest & least affordable but
a wonderful fit . . .HM says he has no time frame but is ready to react
since big co .s don't come along as often as small ones . . .BEYs PM'S GRSAT
CASH FLOW . pouring in at $10 MILLION A
in erest ,~. `-~~.,u~~~2~,~7,7.q1.}_?y._~~•~t.qs t EVEN AFTER'"~APITAL EXPENDITURES
~~THY DIVIDEND, PM HAD $i• .3 BILLION IN EXCESS CASH FLOW LAST YR=
clear ex lanation of "FREE CAS TO
, I , PRICE RISES THAT SP.IARTLY OUTPACE INFLATION ; concedes Vic Ch ir n
Murravs "WF'V . nON I BECATi3R WE THOIIGHT WF' :'OTn•D GET A Av W'rmu TT .
~ =AVE . THAT'S WH T YO 'RE IN S SS O O"#*-~~**-## see RK interview
w Murray Bring & question on crocodile tears re excise tax hikes vs . PM's
own aggressive pricing to which he says latter is willingness to let the
mktplace decide vs . former is mandatory govt edict)//PM using some of its
extra cash to buy in $1 .5 billion, or ca . 5% o£ outstanding common//
H e,'r-rST-T MAXWELL : his affable, rumpled appearance a bit misleading ; he is
Rrd as nails . . .HIS_ ACQUISITIVE_INSTINn~ : what's available to you for
eS are rarely as attrac a.v£~e as the ones you pick yrself : "It's unfortunate
that those involve, as we say euphemistically, 'unsolicited of£ers "
(but no regrets) . . .•n cases of GF t he went after LARGEST CO .S P
OULD under him PM has earned its rep as one o the
• best-run co .s in US/ see ANALYS .LS OF l~SETS USE at_tL99 as per Joel Barth
analysis at RAE : case an Fie made tFat "Uo . managements would serve their
shareholders better if they treated the cig business as A DWINDLING ASSET,
paying out all the cash flow in dividends rather than launching expensive
takeovers, "I~UT THIS LSN'T THE WAY THE WORLD WORKS . THERE ARE TOO MANY
JOB..S INVOLVED, TOO MANY PERKS the weight o£ too much tradi~ion "&
urchi HM i' com to oreside over
liqui~3aTion----- WrVT_RK : omitted : the yen for power, beyon mere perks)/
says 5on this pt : "If we can go on delivering superior returns to our
stockholders w/an acquisition program, then they really don't have too
much to complain about"***Storr points out just how superior the return
as beens 100 shares bought in '66 for $8 000 now worth $75O OOO ; since
~~~,~ '! TOTAL RET iRN HAS A .RAGF.D 977 __ NFARLY 4WICE THE S&P 5~~
S_TILI_.F RFR AC_QUI_S_ITION : had muc in n common wit PMiu~turally based
product, recession-resistant, well known '~rand
(low cost also, heavily
dependent on adv) . . .Niurphy plainly loved his work there, brought in innovative
adv//GENERAL FOODS I'ION : it drifted as PM took heat from
G-JallSt for not takin forceful ro1 o . a once . . . e ~xecs
wa c_~e_i c ose . - r yrs before taking ac ion . . .FIN!"~teTt` U`~F` w"~'s~i't a
comp- -le~e"~ooc~~o. w eno'ugPt"'g~ren'"`g'eA'"~if""gY°dlHtYi=13Y•omising areas of the mkt,
e .g ., its ~ost cereals as a weak #3 behind K iloai~' & GenMills, it didn't
offer buyers enough appea ing pro uc ine . . .KRAFT GOT IT A LOT MORE
that GF didn't have, esp . cheeses, Breyers & other ice creams, Parkay +
ENORMOUS CLOUT W/SUPERNIK73=10°0 of' •a-1,1v US__brsnded packa~e•d~fpods*'~-**-~'MILES
1lic~a~eFl•"opera~ions, ES TO WORK : cut 2 .500 from payroll, conso moved-Tg
o Glenview . . .one-time savings goose up opera-Ung earnings ' o even
thou-T revs went up only 21- . . . future PRODUCTIVITY IMPROVEMEN26 AIMED A
I
SUSTAINING 15L_E_ARNINGS GROWTH annually ; hopeful signs Maxwell ouT•se line
has begun to regain sh~ =~ebig falloff///FUTURE ACQUL52TIONS : PM
I not likely to stray far from food since, as HM says,'"we would not get
the same degree of synergies & efficiencies . So we more or less have to
think in terms of food . .,PEPSICO : stron~ & well-managed & no conflicti
-oroduc s . domin t preseneack ca major a$ rac ion, esp .
Fr-!to-Lay -- an area where 'M is now erF e. . .BUT : PM can grow w/_o-megamergers
es p . in INTL FOOD where HM concedes ' e c u '& it can•t
be done w one big gu p, i s a matter,of picking up attractive bits &
pieces, e .g., '8 $100 mill• ou ', Italian
pasta-& cold-cuts co ., a neat fit PIELL M .O . : his big est £ear is
rOL.'PTjAOF :NrtY,, .says Miles : "ONE OF HAMISH P/IA OTIONS CON T CTIVE
DISSATISFACTION" adding how at officers' Xmas party he said h~e ai never
seen PM produce a great yr -- "Now that's a fairly high level of constructive
dissatisfaction :" . .e e rout•n consults w middle m s to obta•
accurate inte~l~ene -~^om tt,e f,-r,,,t lines SIDEB , e ing t e guilt ~
ou of the product" & noting how Lite was the equivalent o£ the filtered V
cig . . .natural extension of this into KGF w/getting out fat-free versions ~
of its dairy & meat lines, also baked goodsui,*~*'"'Kraft baked goods now
using egg whites & non-fatmilk, eliminating fat ~
--RICH & HUNGRY FOR GROWTH, Fin . Times does a leader look at Miles on ~
eve of his chairmanship & "options for the enormously-profitable PM," %p
8-27-91s Miles is NONSNTY,G CF.O . . .much speculation re Heinz, shares of which
rechy jumped on rumor of bidder in the wings/US tob mkt still enormously
p-rofitable even in its decline . . .Pin's OPERATING ytARGIN FOR DOMES TIC TOB .
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