Philip Morris → Kraft
A cigarette maker paid $13.1bn in cash, $106 a share, for the largest independent US food company in October 1988 — the second-largest US merger up to then — and, with General Foods already in hand, became the world's biggest consumer products company.
A hostile tender offer that made Philip Morris the largest consumer goods company outside the oil industry.
- Value
- $13.1B
- Announced
- October 1988
- Completed
- December 1988
- Sector
- Consumer
- Deal type
- acquisition
- Acquirer
- Philip Morris (United States)
- Target
- Kraft (United States)
Why it mattered
Philip Morris, the maker of Marlboro, was using its large cash flow to reduce its dependence on a declining US cigarette market: Miller Brewing first, then General Foods in 1985. On 17 October 1988 it offered $90 a share for Kraft, whose stock had closed at $60.125 when the offer was made. Kraft's board rejected it and proposed a recapitalisation it valued at $110 a share or more — a large cash payout funded by new debt and asset sales — which Philip Morris challenged in court. Late on Friday 28 October it raised its price to $106, and Kraft's board approved the deal on Sunday 30 October.
The purchase was paid for with $1.5bn of Philip Morris's own cash and $12bn of credit lines from Citibank and 63 other banks. Philip Morris insisted it was not a leveraged buyout: nothing would be sold, and the debt would be repaid from cash flow within five years. It came in the same month as the RJR Nabisco contest and Grand Metropolitan's bid for Pillsbury, and Philip Morris expected no trouble with the Federal Trade Commission because Kraft's products did not overlap with its own.
What it left behind
Kraft was combined with General Foods as Kraft General Foods, and Michael Miles, who ran it, went on to become Philip Morris's first non-smoking chief executive in 1991. The food side kept growing — Nabisco was added for $18.9bn in 2000 — but living beside cigarettes became a burden: in the early 1990s investors already backed splitting the group to shield Kraft from tobacco liabilities. Philip Morris sold part of Kraft in a 2001 flotation, renamed itself Altria in 2003, spun off its remaining 88.1% stake in March 2007 and Philip Morris International in 2008. Kraft then split in 2012 into Mondelez International and Kraft Foods Group, which merged with Heinz in 2015; Kraft Heinz announced its own separation in September 2025 and paused the work in February 2026. A cash-rich conglomerate can buy almost any business; what it cannot buy is a lasting reason for investors to pay for the combination once the business funding it becomes a liability.