Nabisco (US)

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Nabisco was the heritage American cookies and crackers business that now forms the heart of global snacking giant Mondelez, having been separated out from the old Kraft Foods company in 2012. Before Nabisco was swallowed up by Kraft, it was one of the two main arms of diversified conglomerate RJR Nabisco. That company made financial history in 1988 as the target of what was then the biggest ever leveraged corporate buyout, a deal which set the tone for the greed mentality of the decade and beyond, and was immortalised in the book (and film) Barbarians At The Gate. For many years, Nabisco's operations were confined mainly to North America, until the acquisition in 2007 of Lu, previously its main rival in Europe.

The National Biscuit Company, as Nabisco was originally named, was an amalgamation of almost 120 separate bakery businesses assembled by Adolphus Green in 1898. Green was in fact an attorney by training, and his interest in the bakery business began when a committee of separate bakery owners from the Midwest sought his assistance in dealing with the competitive threat from New York bakeries which had begun to market their products aggressively in the region. He persuaded his clients to join forces as a single company, and so the American Biscuit & Manufacturing Company was formed in 1890 from the merger of more than 40 separate bakeries in the Midwest. Eight years later, American Biscuit itself merged with its two main rivals, the United States Baking Company and the New York Biscuit Company, each also composed of numerous different local businesses. Among the most distinguished of these was the Josiah Bent Bakery, which had originally coined the term "Crackers" in 1801 as a descriptive brandname for one of its products.

Not content to make do with its founding brands, which included Fig Newtons (first manufactured in 1891) and Premium Saltines, the National Biscuit Company introduced a series of new products during the early years of the century which remain among the country's foremost food brands. At the time, the most important of these was the Uneeda biscuit, introduced in 1901, flakier and lighter than any cracker previously marketed to the public. More importantly perhaps, whereas crackers had previously been sold in bulk out of an open barrel, Uneeda was the first biscuit to be sold in a sealed wax paper bag designed to keep the product fresher for longer. Although Uneeda is still sold today, its popularity was firmly eclipsed by another product, launched in 1912. The chocolate and cream Oreo cookie became the country's best-selling biscuit almost immediately after it was launched and has retained that position ever since. Ritz crackers were launched in 1935, and the company subsequently acquired a steady stream of other businesses including Shredded Wheat (in 1928), Milk-Bone dogfood (1931), Cream of Wheat (1961) and Standard Brands, makers of Planters peanuts and Blue Bonnet margarine, in 1981.

Following the acquisition of Standard, that company's CEO Ross Johnson took on the same role at Nabisco, and then again after the company was acquired by tobacco manufacturer RJ Reynolds to form RJR Nabisco. In 1988, Johnson attempted an ambitious buyout of the company, but was countered by a bid from financiers Kohlberg Kravis Roberts, who eventually seized the prize with a $25bn bid. The battle to acquire the company, memorably documented in the best-seller Barbarians at the Gate, was one of the defining moments in US corporate history and set the tone for the greed mentality of that decade. But this was also to be the start of a long but steady decline of the business. [See RJ Reynolds profile for more].

In one of a number of moves to reduce the colossal debt with which RJR Nabisco had been saddled, the group floated a 19% stake in the Nabisco Foods division in 1995. However it was not enough to protect the conglomerate from an army of angry shareholders, led by corporate raider Carl Icahn, who argued that the business should be broken up. Eventually RJR Nabisco CEO Steven Goldstone engineered a three-way split of the group, spinning off the tobacco interests to leave Nabisco as a focused foods business. As it transpired the break-up provided only a temporary respite.

Having spun off the tobacco interests, at the end of 1999 Nabisco mounted a £1.2bn bid for dwindling British cookie company United Biscuits. Once a mighty force in the UK, UB had shrunk to a shadow of its former glories. Formed out of the merger of McVitie & Price and MacFarlane Lang in 1948, the company controlled over half the UK biscuit market by the 1970s, with brands including Jaffa Cakes, Penguin, KP Nuts and Hula Hoops. In 1974, UB bit off more than it could chew with the takeover of US company Keebler, and since the 1980s had gradually divested many of the other businesses it had accumulated. Among these deals, in 1999 it sold its frozen foods division, including Linda McCartney vegetarian meals, Jane Asher desserts and San Marco pizzas to Heinz.

Nabisco made its offer through newly formed vehicle Burlington, to be funded by US venture capitalists Hicks Muse, Tate & Furst. Nabisco planned to combine their own small European biscuit business with United, ultimately boosting their shareholding from 23% to full ownership when Hick Muse sold out. Initially the UB board accepted Nabisco's offer. But a day later, a rival offer landed on the table from Finalrealm, an investment consortium representing French bank BNP-Paribas, UK venture capitalists Cinven, and Deutsche Bank. Finalrealm planned to keep part of the business and sell on the rest to French food company Danone.

A furious bidding war ensued until the two rival bidders finally agreed to join forces and split their target between them. Burlington and Finalrealm presented UB with a combined £1.26bn ($2.1bn) bid. Nabisco would become the largest shareholder in United with almost 25%. The various consortium banks and VC partners would divide the remaining shares. However, Danone would acquire UB's assets in continental Europe, including TUC biscuits in the UK, for around £290m. In a side deal, VC house Hicks Muse and Nabisco agreed to combine their separate Horizon Biscuits and Spanish snack businesses in a third company, and this was subsequently transferred into UB, along with European rights to Nabisco's existing brands, such as Ritz and Oreo.

While this deal went before regulators, Carl Icahn renewed his assault on Nabisco, making his fourth attack in five years. The latest offer was his highest, an offer of $5.2bn to buy Nabisco Group Holdings, the parent shell owning 81% of the biscuit company. Nabisco's response surprised many. Instead of rejecting the bid out-of-hand, the company instead announced it would put the whole business up for a market auction. Several companies bid for the group, with the strongest competition to Kraft coming from a combined Danone-Cadbury Schweppes team. However, it was Kraft who prevailed with a $14.9bn cash offer. At the same time, RJ Reynolds acquired its cash-rich former parent company for $9.75bn, trumping Carl Icahn (who nevertheless made a huge profit from the sale of his own shareholding in the parent company).

A few weeks later, Philip Morris began the process of selling off unwanted Nabisco brands. The first to go was the mints and gum portfolio of Breath Savers, Ice Breakers, and Cool Blasts, sold to Hershey. The Nabisco portfolio was gradually incorporated into Kraft worldwide from December 2000 onwards.

Last full revision 4th October 2017


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