Philip Morris to Sell Kraft Food Service : Divesting: A private investment firm will buy the institutional division of Kraft General Foods for $700 million.
NEW YORK — Tobacco, food and brewing giant Philip Morris Cos. agreed Monday to sell its Kraft Food Service Inc. division to private investment firm Clayton, Dubilier & Rice for about $700 million in cash.
With annual revenue of about $4 billion, Kraft Food Service distributes a wide range of food service products to restaurants, hospitals, public institutions and other non-retail outlets. It is a division of Philip Morris’ Kraft General Foods Inc.
“It will be a cash deal . . . it’s in the neighborhood of $700 million,†said Andrall Pearson, a principal in the investment firm.
Clayton, Dubilier & Rice has also purchased subsidiaries from International Business Machines Corp., Colgate Palmolive Co., Xerox Corp. and BF Goodrich Co.
Kraft Food Service distributes more than 160,000 products manufactured by a wide variety of suppliers, including Kraft.
The distributor will remain based in Deerfield, Ill. It has 8,800 employees and operates through 42 distribution centers across the United States.
By selling off Kraft Food Service, Philip Morris gets out of a low-margin business that was a drag on earnings, industry analysts said.
“It’s been a business that hasn’t been run terribly well over the years,†Smith Barney analyst Ronald Morrow said.
No major effect on Philip Morris earnings is seen as the deal has been anticipated for some time, analysts said.
“They’ve been trying to sell this for at least a year,†UBS Securities analyst Anton Brenner said. “It’s a very low margin business. It’s not a place they wanted to invest more capital. They’re better off without it.â€
As part of the agreement with CD&R;, Kraft Food Service will remain the exclusive distributor of Kraft-brand food service products to most traditional institutional customers for five years, subject to terms of the agreement.
Talks leading to the sale were announced in September.
The transaction is expected to be completed within the next several months, subject to regulatory approvals, the companies said.
CD&R;, founded in 1978, manages equity capital in excess of $1 billion. “This purchase will just about exhaust that,†Pearson said.
Clayton Dubilier said it specializes in acquiring divisions of large corporations and working with management to create more competitive enterprises and superior returns.
“We don’t ever have an exit strategy,†Pearson said. “All we try to do is double the profit in five years.â€
Philip Morris, manufacturer of Marlboro brand, is the largest U.S. cigarette company. It also is a major producer of snack food and beer through its Kraft General Foods and Miller Brewing Co. units.
Its stock fell $1 to $57.625 Monday on the New York Stock Exchange.
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