The Race to Buy Nabisco is On
By Matt Paolucci

Late Thursday, New York-based Philip Morris Cos. (MO) appears to be in the lead with a $55 per share bid to acquire all of Nabisco Holdings Corp. (NA), valuing the company at roughly $14.57 billion.

Philip Morris has long been viewed as the most likely buyer of Nabisco and one that could afford to pay the most because of the potential for synergies.

A competing bid from Groupe Danone and Cadbury Schweppes, two European food concerns, has reportedly come in at under $50 a share (roughly $13.5 billion). The lower bid, analysts say, is most likely due to limited ability to realize cost savings from a possible merger.

Nabisco would be a strategic leap into the U.S. market for both Cadbury and Danone, although analysts say they a combination would lack the operational synergies of a Philip Morris/Nabisco deal, which could use Nabisco's store delivery system to distribute Nabisco and its own Kraft foods.

But even MO's $55 per share price would represent less than a 4 percent premium based on Nabisco's Wednesday night close of $53.25. Looking from a different angle, the $55 offer may reflect the belief that Cadbury and Danone simply won't pay up because the projected savings wouldn't support it.

Marc Cohen, an analyst at Goldman Sachs Inc., said there was a "decent chance" Philip Morris "could pay as much as $60 a share for Nabisco."

Jaine Mehring, an analyst with Salomon Smith Barney, wrote that $64 a share "could still be 'affordable' to the current set of bidders."

Carl Icahn, who originally put in a bid of $22 per share for the company three months ago, has now offered to pay $28 a share, or about $8.26 billion, for the remaining stock he does not already own in the food empire. Icahn and his shareholder group offered to pay $19 a share in cash and a two-year, 14 percent note worth $9 a share.

Mr. Icahn's main rival for the holding company is R.J. Reynolds Inc. (RJR), the Winston-Salem, N.C.-based tobacco company that was spun off last year by the holding company. Reynolds has submitted a bid that is contingent on the food company being sold. Its bid is priced at a 20 percent discount to the net proceeds received by Nabisco Group from the sale of the food unit.

Nabisco Holdings (NA) is approximately 80 percent owned by Nabisco Group holdings Corp. (NGH).

Nestle, H.J. Heinz (HNZ) and other companies have also informed Nabisco that they are interested in buying individual assets, should Nabisco choose to sell any assets, or possibly dispose of some assets once a deal is agreed upon.

Whichever scenario prevails, Icahn stands to benefit. The billionaire and his investor group hold a 9.6 percent stake, or about 31.2 million shares.

A person familiar with the matter warned that it was still possible for a last-minute entrant to enter the auction, which is being handled by UBS Warburg and Morgan Stanley Dean Witter & Co. Nabisco's board is expected to meet as early as Friday to review the expected bids.