NEW YORK (CNNfn) - Financier Carl Icahn said he could raise his offer of $28 per share for the rest of Nabisco Group Holdings he doesn't already own to $31 per share, as a two-tiered bidding war for the packaged food company and the subsidiary that produces the brand products that bear its name heated up.|
In a letter to NGH Chairman Steven Goldstone, filed with the Securities and Exchange Commission, Icahn said he could bid $19 in cash per share plus $12 in two-year 14 percent notes, or $31, up from his previous bid of $19 cash and $9 in notes.
Icahn also thanked Goldstone for calling him and saying Icahn's bid is still in the running.
Icahn's new proposal would value Nabisco Group Holdings (NGH: Research, Estimates) -- whose sole asset is a roughly 80 percent stake in Nabisco Holdings Corp., which makes such products such as Oreo cookies, Lifesavers candy and Ritz crackers -- at $10.07 billion.
Industrial Bank of Japan backs his bid. Icahn already owns a 9.6 percent stake in the parent company.
The offer is a significant increase from the $22-per-share takeover offer Icahn proposed in early May, and a 25 percent premium over the company's closing price of 24-3/4 Thursday.
Icahn's proposal comes as at least two other bids reportedly were submitted late Wednesday for the subsidiary, Nabisco Holdings Corp. (NA: Research, Estimates) -- one from Philip Morris Cos. and another joint bid from British-based Cadbury Schweppes and France's Group Danone.
Icahn also addressed bids for Nabisco Holdings in his letter, telling Goldman he would be willing to offer 88 percent of the net after-tax cash in NGH, if Nabisco Holdings is indeed sold for cash.
Ann Gurkin, food and beverage analyst for Davenport and Co. said the bidding war for NGH is just beginning. Gurkin told CNNfn she would imagine there are other bidders for NGH, but does not have "any public information regarding that."
Analysts consider the subsidiary to be a more valuable asset than Nabisco Group Holdings, which may still have some exposure to ongoing national tobacco litigation because it once owned R.J. Reynolds Tobacco Holdings.
Ironically, R.J. Reynolds (RJR: Research, Estimates) also reportedly submitted a bid for Nabisco Group Holdings Wednesday and now represents Icahn's only public competition for the parent company.
Lower bids than expected
Philip Morris Cos. (MO: Research, Estimates), the tobacco and diversified food concern, offered less than $55 per share for the Nabisco subsidiary, according to The Wall Street Journal, citing people familiar with the matter. The company, considered the favorite by analysts to win the auction, declined to comment on the possible bid.
The newspaper also said British-based Cadbury Schweppes and France's Groupe Danone submitted a lower $50-per-share joint bid for Nabisco Holdings because of concerns about the cost savings they could realize.
Cadbury Schweppes declined to comment, referring only to a May 16 statement in which it expressed interest in parts of Nabisco's business. However, a source close to the company confirmed it made a joint bid with Danone, although details of the offer were not immediately available. Danone also declined to comment.
Wednesday was the deadline for bids on either Nabisco or its subsidiary. The companies were forced to go on the selling block in April when Icahn, frustrated with Nabisco's sagging share price, offered to purchase the parent company for $16 per share and threatened a tender offer.
Analysts widely expect the more valuable food operation will be sold first, leaving Icahn or some other company, most likely R.J. Reynolds, to purchase the cash-filled shell. Those funds then could be used to help cover the hundreds of lawsuits brought by millions of sick smokers.
Analysts also doubt Wednesday's proposals marked the final round of bidding for the company. Nabisco is expected to make some sort of public statement on the process by early next week in an attempt to push the bidding higher, according to one analyst.
Still, the lower-than-expected bids raise the possibility that both companies will garner less than the Street expected. Analysts told CNNfn Wednesday that Nabisco Holdings likely would attract a bid of $60 per share, or $16 billion, while Nabisco Group Holdings could fetch closer to $30 per share.
That disappointed investors, who sent Nabisco Holdings falling 1-11/16 to 51-9/16. Philip Morris fell as well, losing 1-1/16 to 23-15/16.
But Nabisco Group Holdings shares rose 1/16 to 25.
Nabisco's Holdings fortunes weren't helped when analysts from Goldman Sachs and Prudential Securities Inc., sensing the bidding would not climb much higher, both cut their ratings on the company Thursday morning. Prudential cut its rating to a "hold" from an "accumulate," while Goldman cut its rating to "market perform" and dropped the company from its U.S. Buy list.
"Even if the auction does not go to where some people expected it to, the stock had a great run up," said John McMillin, a food analyst with Prudential who has been predicting that Nabisco Holdings would bring $55 per share. "I just don't see a lot of upside at this point."
But other analysts disagreed. Martin Feldman, a tobacco analyst with Salomon Smith Barney, called Wednesday's deadline was "a line in the sand" and reiterated that he expects the bidding to venture higher.
"The offers of the bidders must remain valid until July 21st," he said. "Essentially this generous timetable allows the management of [Nabisco Group Holdings] to have bids raised in additional bidding rounds."
Feldman did concede, however, that there was no incentive for any of the bidders to offer their highest price at this point.
In trading Thursday, shares of Danone (PBN) fell 4.2 percent in Paris, while Cadbury Schweppes (CBRY) fell 3.5 percent on the London exchange.
The Journal reported that Nabisco's board is scheduled to meet Friday to review the latest round of offers. UBS Warburg and Morgan Stanley Dean Witter are handling the auction. A Nabisco spokesman declined to comment on the board meeting.
The offers come against a backdrop of consolidation in the food business, where margins have been low for years. Moreover, mergers among the supermarket chains that form the manufacturers' major customers have put the squeeze on producers' ability to control prices. On April 6, the Anglo-Dutch consumer products maker Unilever announced plans to buy U.S.-based Best Foods for about $20 billion.