Phlip Morris and Kraft

Question 1 Why is Kraft a takeover target?

Solution

As expressed by the Kraft Chairman, Mr. John Richman, “Kraft has an outstanding record of profitability and growth. It is a great company with great traditions, great brands, a great future”.

The takeover bid by Philip Morris for Kraft,

The food industry is a growing one. For Kraft, in 1987 net sales were $9.9 billion which was an increase of 27% over the previous year., and net income increased by 11% to $435 million. It is expected with an increasing population that the food industry will grow. 

As Philip Morris is seeking to diversify out of the tobacco business and into the food industry, the acquisition of Kraft would strengthen their position as they would then become the largest food company in the world. 

Kraft is internationally recognised with many well known brand names such as Miracle Whip, Seven Seas, and its range of Kraft salad dressings. 

1. Future Industry trends: Changing industry trends such as high demand for long flights especially VLA aircraft particularly in emerging economies such as China and constraints such as airport capacity and operational limitations have forced airline companies to opt for short-term solutions including increased frequencies, increased point-to-point routes, which are clearly not sufficient. With the production of A3XX, Airbus plans to address these issues and offer an aircraft which can fly longer routes. Airbus will be charging higher than the competitor aircraft of Boeing 747-400, aiming at increased capacity and reduced costs.

2. Economies of scale: The trend highlights that large aircraft operating over long distance flights had a better operating economy and lead to economies of scale. For instance, the cost of operating the A3XX flight will be 12% more than Boeing as A3XX leverages its “fly-by-wire” technology but provides 35% more space and lower passenger load factor, an effective source of revenue.

3. Compete with Boeing 747...