Philip Morris Acquires Kraft: Strategy, Synergies, and Concerns
This paper examines Philip Morris, Inc.'s acquisition of Kraft, Inc., exploring why a tobacco-dominant company pursued a major food conglomerate. It outlines the strategic logic behind diversifying away from a declining domestic tobacco market, analyzes how PM's aggressive marketing leadership could revitalize Kraft's slow-growth brand portfolio, and draws parallels to RJR's earlier acquisition of General Foods. The paper also considers the immediate benefits to Kraft shareholders and market share while raising critical questions about whether the merger would truly benefit all stakeholders—employees, smaller shareholders, and the broader public—or simply concentrate corporate power in fewer hands.
- Introduction: Why Philip Morris Sought Diversification: PM's tobacco reliance drives food acquisition strategy
- How the Acquisition Would Boost Kraft's Sales and Earnings: PM's marketing muscle revitalizes Kraft's stagnant brands
- Distribution Synergies and the RJR Precedent: RJR/General Foods merger guides PM's distribution strategy
- Unresolved Questions and Critical Perspectives: Critical doubts remain about merger's broader stakeholder impact
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What makes this paper effective
- The paper grounds its strategic argument in a concrete, memorable quote from Hamish Maxwell that succinctly captures the logic of diversifying into food.
- It uses a specific, verifiable data point—Kraft's stock rising from $60 to $106 per share—to substantiate claims about the acquisition's immediate market impact.
- The concluding paragraph demonstrates intellectual honesty by acknowledging the paper's own source limitations and offering a balanced, cautious verdict rather than an uncritical endorsement.
Key academic technique demonstrated
The paper demonstrates evaluative analysis: it moves beyond simply describing what happened to assess why the acquisition made strategic sense, how it compared to an industry precedent (RJR/General Foods), and what evidence supports or complicates optimistic claims. This layered approach—describe, compare, evaluate, qualify—is a core skill in business case analysis.
Structure breakdown
The paper follows a four-paragraph structure. The first establishes strategic motivation (tobacco risk, food as safe haven). The second covers financial and marketing benefits for Kraft. The third draws on the RJR/General Foods precedent to explain distribution and advertising synergies. The fourth pivots critically, questioning source balance and cautioning against uncritical acceptance of corporate merger narratives. Each paragraph builds logically on the last.
Introduction: Why Philip Morris Sought Diversification
When Philip Morris, Inc. moved to acquire Kraft, Inc., it did so for several reasons. First and foremost, PM had made a lion's share—approximately 80%—of its fortune in tobacco and tobacco products. Putting aside the obvious and numerous health problems that such products are known to cause, PM continued to manufacture the leading brand of cigarettes, Marlboro, and continued to sell its products internationally at a greater rate than ever before. But its management was not entirely naive about the future: in America, tobacco had fallen at least somewhat out of favor and might someday become completely illegal. Therefore, much like R.J. Reynolds and other major tobacco companies had done, PM's leadership looked around for an even "surer thing" than tobacco—and found it in food.
It was an obvious choice. As Hamish Maxwell put 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." PM's strategy, then, was to buy a food business while its profits from tobacco were still large enough to do it right.
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