Signals
From Philip Morris Insiders?
By Paul Elliott, editor
Insiders' Chronicle
Philip
Morris Companies Inc. (MO) and Kraft Foods (KFT) are
the talk of the town. Not only did the tobacco giant finally
offer up Kraft to the public, at the same time reviving a sleepy
IPO market, but once again found itself in legal hot water.
On June 6, the company
was stung by a seminal California Superior Court ruling and found
itself on the wrong end of a $3 billion individual punitive damage
award. The judgment was the largest in history and one that sent
shock waves through an industry already reeling from a judgment
just two days earlier. Wall Street, as it has all year, took
it all in stride, focusing instead on the Kraft IPO.
In fact, analysts who
had been muzzled by the pending IPO, have since raised their
expectations based on a sum-of-the-parts thesis. According to
this argument, Philip Morris should be valued between $50 and
$70 per share, depending on which analyst you ask. One evaluated
the company's stake in Kraft at $20 per share while placing a
$47 per share price tag on its non-food assets. Others feel that
Kraft is overpriced, and that a flat food industry may not boost
the share price.
Meanwhile, just prior
to the IPO, co-chief executives of Kraft, Betsy Holden and Roger
Deromedi each made their first sales of Philip Morris stock since
their initial ownership filings. In addition, Chairman, CEO Geoffrey
Bible, who last sold in August '99, ahead of a two-month, 35%
drop, made his largest sale since '94. VP, Taxes Bruce Brown
also sold shares for the first time since selling with Bible
in '99.
In all, from May 15
through May 29, eight insiders sold or filed to sell 180,456
share between the prices of $49.93 and $52.56 per share. While
the volume of insider sales seems small in comparison to the
holdings of each insider, this happens to be the largest round
of sales since the drop in '99
Despite all the hoopla,
it seems naïve to assume that Philip Morris much less Kraft
is out of the woods. A seemingly never-ending threat of litigation
is an obvious concern. So, too, is the question of control. The
more cynical among the (independent) analyst community are already
raising concerns regarding the degree to which Philip Morris
(still a controlling holder) will consider the fate of Kraft
in future operational decisions. The sales by Kraft executives
do little to ease such concerns.
Editor's Note: Paul
Elliott is editor of Insiders' Chronicle, 1455 Research Blvd.,
Rockville, MD 20850, 1 year, 50 issues, $315. Visit the Web site
at www.eyeoninsiders.com.
