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Finance 450 at EMU with Dr. Moeller

Philip Morris/Kraft
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Philip Morris/Kraft

Substantive Issues

This case gives students the opportunity to explore the effect of substantial free cash flow on corporate acquisition and operating strategies. Students are also given the opportunity to extract information from the common stock prices of the participating firms. A variety of valuation techniques are employed to assess the plausibility of a restructuring plan.

Pedagogical Objectives

To demonstrate the process of a takeover and the way it works. To analyze the price of Kraft and the strategy of Philip Morris to become the largest food company in the world.

Suggested Questions

1. How did the stock market assess Philip Morris’s $90 per share bid for Kraft?

2. Can Philip Morris finance the Kraft acquisition?

3. What is the value to shareholders of the restructuring proposed by Kraft?

4. What price should PM pay for Kraft?