EXHIBIT 99.2
Remarks of Geoffrey C. Bible
Chairman and Chief Executive Officer
Philip Morris Companies Inc.
Nabisco Acquisition Press Conference
June 26, 2000
This is a very exciting day for all of us in the Philip Morris family of
companies. I trust that you will share our enthusiasm for our acquisition of
Nabisco and our plans for an IPO of Kraft.
With me today are Bill Webb, our Chief Operating Officer; Betsy Holden,
Chief Executive Officer of Kraft Foods North America; Roger Deromedi, Chief
Executive Officer of Kraft Foods International; and Louis Camilleri, our Chief
Financial Officer. They will assist me in fielding your questions once I
conclude my remarks.
As most of you know, we announced yesterday that we reached definitive
agreements to acquire all the outstanding shares of Nabisco Holdings Corp. for
$55 per share in cash. The transaction reflects an enterprise value of $18.9
billion, including the assumption of approximately $4.0 billion in net debt.
Concurrent with this, we also announced plans to conduct an initial public
offering, of less than 20% of the newly combined company, formed through the
merger of Kraft and Nabisco. The IPO is targeted for completion in early 2001.
My remarks will cover our rationale for these transactions and their impact
on Philip Morris' growth prospects and shareholder value.
For some time now we have said that Kraft was ready to absorb a sizable
acquisition. The portfolio actions we have taken in the last few years, the
emphasis on productivity and innovation, the caliber and depth of our world-
class management team, and the level of our operating-income margins are such
that today Kraft is undeniably the most efficient food company in the world.
For those of you who follow us closely, you know that we take an extremely
disciplined approach to acquisitions. I have often said that we would be
willing to use our considerable financial firepower to add a sizable food
business to Kraft as long as it met several key criteria. Any significant
acquisition would have to:
- be at a price that would yield attractive economic returns;
- provide strong brands in leadership positions in growing categories;
- fuel our earnings growth rates and be rapidly accretive to cash
earnings;
- have a low risk of integration;
- enable us to maintain our credit ratings;
- and fuel shareholder value and not impair, in any manner, our
significant dividend and share-repurchase programs.
The Nabisco transaction, coupled with the IPO of Kraft, fits squarely with
each one of these key criteria.
The combination of Kraft and Nabisco creates a real global leader in the
food industry. Scale is a real advantage in this industry. As Kraft has
proven, it increases both efficiency and effectiveness, leverages our service to
the trade, and benefits consumers in numerous ways.
Kraft has learned how to utilize this scale to deliver strong results year
after year, and with $17.5 billion in revenues, Kraft Foods North America was
already well ahead of its peers in 1999. This industry-leading scale has
enabled Kraft Foods North America to make solid financial progress, with volume
up 3.3% annually over the past five years; revenue up 3.5%; and income from
operations up 8.2% to $3.2 billion, yielding a margin improvement of 3.7 points
to 18.5%.
During the past three years, this performance has enabled Kraft to move to
the number one position in terms of organic income-from-operations growth,
excluding acquisitions and divestitures.
On the basis of 1999 pro forma figures, the combination of Kraft and
Nabisco would create a 24-billion-dollar revenue company in North America and
further strengthen Kraft's position. On a worldwide food-industry basis, Kraft
would become a $35-billion company, as we would gain ground on Nestle and stay
ahead of Unilever and Bestfoods.
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In terms of worldwide food income from operations, Kraft would become
number one, with $5.5 billion in income from operations - and that's before any
synergies. In addition, we'll be moving ahead of Nestle and Coca-Cola, and
we'll stay well ahead of Unilever and Bestfoods. The bottom line is that this
is an important scale-enhancing opportunity for Kraft.
Nabisco is also blessed with a particularly attractive product and brand
portfolio which is heavily weighted towards snacking occasions, which meet
today's growing demand for convenience products. Snacks accounted for 89% of
Nabisco's U.S. revenues and 82% of its worldwide 1999 revenues.
The high-margin snacks category is large and growing. In the U.S. alone,
the category accounted for some $50 billion in retail sales in 1999, which grew
at 4%. This is twice the total food industry rate. Cookies and crackers grew
at a faster clip, at 4.4%. In addition, several other segments in which Nabisco
is a leader, such as candy and gum, also grew at healthy rates.
Today, Kraft has a 6% share of snacking. Tomorrow that share will grow to
nearly 20%, providing us with a superb platform to accelerate Kraft's top-line
growth. Nabisco also enjoys strong competitive positions. It is the worldwide
leader in cookies and crackers with a 13% share, and together with its current
stake in the former United Biscuits, would command an 18% share.
In the U.S., Nabisco has a growing 44.5% share of the cookie and cracker
category, significantly ahead of Keebler, Private Label, and Pepperidge Farm.
It is also the international cookie and cracker category leader in Canada,
China, and several markets in Latin America, including Argentina and Venezuela.
And that excludes United Biscuit's number one share position in the UK and
Benelux.
Planters holds a commanding 42.7% share of the growing nuts category in the
U.S., and its revenues were up 14% in 1999. And, through the combination of
LifeSavers and the recently acquired Favorite Brands business, Nabisco is the
clear leader in the U.S. sugar-confectionery category, with a 21.5% share, up
3.5 share points.
A number of other brands are household classics. For example, A.1. steak
sauce has a 62% share of its category, while Grey Poupon commands a 68% share of
the premium mustard category.
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Internationally, Nabisco's operations complement Kraft's geographically.
In Latin America the acquisition will more than double our size, to $2.2 billion
in sales, and in Asia it will increase sales to a combined total of $1.7
billion. In Europe, as I said earlier, Nabisco has a 27% stake in the former
United Biscuits, which had $2.1 billion in sales in 1999.
On a combined basis, Nabisco will add 18 $100-million brands to Kraft's
existing 55, for a total of 73 with annual revenues exceeding $100 million. We
believe that this roster of premium brands is unrivaled. Kraft will now have
seven mega-brands, each with revenues exceeding $1 billion: Kraft, Nabisco,
Philadelphia, Oscar Mayer, Jacobs, Post and Maxwell House.
Nabisco will also add a successful and very effective direct store-delivery
system here in the U.S. and elsewhere to Kraft's existing infrastructure. We
intend to leverage this system by adding selected Kraft products to achieve
wider distribution and enhanced merchandising.
This additional arrow in Kraft's quiver, combined with Kraft's enhanced
worldwide scale, will also improve its ability to better meet the needs of our
trade partners.
The integration of Kraft Foods and Nabisco will yield significant synergies
that we will capture rapidly. These synergies will generate increased
productivity, higher margins, improved returns on capital, and accelerated
revenue and earnings growth. We plan to capture annual cost savings of more
than $400 million in 2002, growing to approximately $600 million by 2003.
Kraft's proven track record and expertise in generating significant
productivity savings and the enhanced scale of the combined company will enable
us to reduce Nabisco's costs to world-class levels. These savings will be
derived primarily from programs affecting the procurement, manufacturing,
distribution, sales and general and administrative functions.
In addition, we project significant revenue synergies resulting from the
combination of the two brand portfolios. The largest opportunities are in brand
line extensions and the exploitation of large-scale cross-merchandising
opportunities and consumer promotions. After all, what better combination is
there than Kraft cheese and Ritz crackers?
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We are confident that the integration process will be smooth, rapid and
successful. Our confidence rests on the fact that over the years we have gained
considerable experience in successfully integrating large-scale acquisitions,
both domestically and internationally. And with Nabisco, we share similar
cultures and management practices - not altogether surprising, given that
Nabisco has many Kraft alumni in leadership positions.
So there you have it. The merger of Kraft and Nabisco will create the
world's most profitable food company and provide a future of even greater
opportunity for a company whose performance and prospects are already very
strong.
The acquisition, coupled with the IPO of Kraft, will yield attractive
financial performance measures. The acquisition of Nabisco will be financed
initially through a combination of short-term debt and bank borrowings.
We believe that the IPO will generate proceeds of between $5 billion and
$10 billion, which we currently estimate to represent 10% to 15% of Kraft's
equity. Proceeds from the IPO will be used to retire debt. Upon completion of
the IPO, Philip Morris' debt-to-EBITDA ratio will be 1.06 and its interest
coverage will be a comfortable 8 times. Goodwill resulting from this
transaction will total an estimated $18.5 billion, which will be amortized over
a 40-year period.
We are delighted that earlier this morning both S&P and Moody's affirmed
our credit ratings.
We expect that the transaction will be immediately accretive to Philip
Morris' cash earnings per share, and to further underscore the attractiveness of
this combination, it will be accretive to earnings per share in 2002. Assuming
completion of the acquisition this October, our 2000 reported earnings per share
will remain essentially unaffected and our 2001 reported earnings per share will
only be very moderately dilutive.
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This strong performance is due to several factors. First, the price we
paid was attractive and compares favorably to recent transactions in the food
industry. Second, the level of synergies that we plan to achieve are
significant. And third, the IPO provides us with the financial flexibility to
maintain our share repurchase program.
The IPO has a number of advantages.
- First and foremost, it is terrific for shareholders.
- It enhances Philip Morris's financial flexibility.
- It preserves our options going forward.
- It provides us with a potential acquisition currency for the future.
- It creates a superb tool to motivate and retain employees and more
closely aligns their compensation with the performance of the food
business.
- And it will underscore the value of Kraft's superb business within
the Philip Morris family of companies.
Our intention is to conduct an IPO of less than 20% of the "new" Kraft. As
I said earlier, the IPO proceeds will be used to retire a portion of the debt
that will be incurred as a result of the acquisition of Nabisco. While still
some six months away, the parameters that will dictate the actual size of the
IPO will include: The optimal level of liquidity required to ensure the success
of the IPO; and the level of debt that Kraft can maintain to assure a strong
credit rating.
We are confident that the equity markets will respond positively to the
planned IPO. Kraft will not only be the world's most profitable food company,
it will enjoy significant top-line momentum and a strong earnings growth
profile. Indeed, we believe its earnings growth rates will be unmatched in the
global food industry.
Kraft is also blessed with a management team and work force, both in North
America and internationally, that is the envy of its peers. We have a
management depth that is unparalleled in the industry, as exemplified by both
Betsy Holden and Roger Deromedi, world-class leaders, relentlessly focused on
growth, innovation, productivity and results.
We are excited to welcome the talented Nabisco team to our family. I would
like to take this opportunity to acknowledge Jim Kilts, President and CEO of
Nabisco, for whom I have the highest regard. Jim leaves us with a great
company, and we wish him well in his future endeavors.
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We anticipate that the Nabisco acquisition will be completed by October
2000. It is subject to approval by the shareholders of Nabisco Group Holdings
and requires customary regulatory approvals. We do not anticipate any
impediments to closure.
The transactions I have outlined are truly compelling from a strategic,
financial and shareholder-value perspective. The addition of Nabisco to Kraft
will create an outstanding food company and will accelerate Kraft's top-line and
income growth rates.
The addition of Nabisco would have resulted in 1999 Philip Morris Companies
pro forma revenues and operating companies income of $86.6 billion and $16.3
billion, respectively, solidifying our position as the world's largest and most
profitable consumer packaged goods company.
Finally, our earnings and earnings-per-share growth rates will be enhanced
by this acquisition to levels that we believe will be unmatched by any other
major consumer packaged goods company in the world.
Thank you.
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Forward-Looking and Cautionary Statements
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All statements included in this press conference that are not purely historical
are "forward-looking statements" within the meaning of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. Investors
should be aware of the following important factors that could cause actual
results and outcomes to differ materially from those contained in such forward-
looking statements.
Nabisco and each of the Company's consumer products businesses are subject to
intense competition, changes in consumer preferences, the effects of changing
prices for their raw materials, local economic conditions and currency
movements. Kraft's results are dependent upon its continued ability to promote
brand equity successfully, to anticipate and respond to new consumer trends, to
develop new markets and to broaden brand portfolios in order to compete
effectively with lower priced products in a consolidating environment at the
retail and manufacturing levels, to improve productivity and to achieve the
synergies anticipated from the Nabisco acquisition. Moreover, the Company's
tobacco subsidiaries continue to be subject to increasing marketing and
regulatory restrictions, excise tax increases, declining consumption, litigation
and bonding risks, including risks associated with adverse jury and judicial
determinations, courts reaching conclusions at variance with the Company's
understanding of applicable law, and the absence of adequate appellate remedies
to get
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timely relief from any of the foregoing. Developments in any of these areas,
many of which are more fully described in the Company's most recent annual and
quarterly reports filed with the SEC, could cause actual results and outcomes to
differ materially from those contained in the forward-looking statements in this
release. The Company cautions that the foregoing list of important factors is
not exclusive. The Company does not undertake to update any forward-looking
statement made in this press conference to reflect any change in management's
expectations with regard thereto or any change in events, conditions,
assumptions or circumstances on which such statements are based.
* * * * * * * * * * * * * * * * * * * * * * * * * * *
This press conference is not an offer to sell, nor the solicitation of an offer
to buy, any securities. Any offer will be made only by means of a prospectus
that will be registered with the Securities and Exchange Commission.
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