Kraft Foods Inc., the largest U.S. food company, raised $8.7 billion on Tuesday in the second-largest U.S. initial public offering ever, winning investor favour as a relatively recession-proof stock.
Kraft , majority owned by Philip Morris Cos Inc. and maker of top brands like Oreo cookies and Jell-O gelatin, sold 280 million shares at $31 each, co-underwriter Credit Suisse First Boston said. Amid strong investor demand, it raised its price target earlier on Tuesday from a previous range of $27 to $30 a share.
The offering values Kraft at about $54.25 billion, making it the largest publicly traded food stock in the United States and second only to Switzerland's Nestle globally. Kraft has No. 1 positions in several food categories, and its powerhouse brands include Maxwell House coffee, Philadelphia cream cheese, DiGiorno pizza, Post cereals, Kool-Aid and Jell-O.
Based in Northfield, Illinois, it is slated to debut on the New York Stock Exchange on Wednesday. It will be 84 per cent owned by Philip Morris after the IPO, although the parent company will control 97.7 per cent of the voting power.
Kraft plans to use the proceeds to pay some $11 billion in debt from the $19.2 billion cash purchase of Nabisco Holdings last year.
The Kraft offering, the second-largest U.S. offering behind the $10.6 billion AT&T Wireless IPO last year, comes amid a general improvement in the market for share offerings - for companies with both revenue and profit and in favoured sectors, such as energy and healthcare.
Kraft fits the bill for a solid stock, although some investors said it seems expensive at the higher price. Kraft reported pro-forma 2000 revenue of $34.7 billion and operating income of $5.7 billion, including Nabisco, the world's biggest biscuit and cracker maker.
"Kraft has a portfolio of high-quality brands as well as good visibility in those brands. It comes across very well and it's a solid company," said Tim Sharman, analyst at Royal & Sun Alliance Investment Management in London.
The food industry, where Kraft competes with giants like Switzerland's Nestle SA, Kellogg Co. and General Mills, is growing at about 1 per cent a year in the United States and 1.3 per cent worldwide.
At the current price, Kraft is priced at more than 30 times last year's net income, well above the food industry average of 18 times, analysts said.
"The deal is going to be under heavy institutional demand and will probably do well at the opening," said David Menlow, whose Millburn, New Jersey-based firm, IPO financial.com, tracks stock offerings.
The new range was the second price adjustment for Kraft, bringing it back to the top of its original range of $26 to $31 a share. Kraft amended the initial range on the offering of about 16 per cent of the company in early May.
Philip Morris shares closed up 58 cents at 49.10 on the New York Stock Exchange. In the past year, the shares have traded between $23.06 and $53.88.Many industry watchers expect the IPO to be just the first step towards a full spinoff that could see Kraft fully independent within two years. (additional reporting by Deborah Cohen in Chicago and Trevor Datson in London)