The Pursuit of Synergy in Our Time
On Oct. 16, 1988, Philip Morris (1987 revenue, $27.7 billion) made an $11.4 billion takeover bid for Kraft, the food conglomerate. Kraft rejected the offer. Subsequently, Philip Morris increased the bid to $13.1 billion, and Kraft accepted on Oct. 30, 1988. The following hypothetical conversation took place in the Manhattan headquarters of Philip Morris, in 1985.
Phil: "They're gonna win one eventually, you know."
Mo: "The Lions, Columbia?"
Phil: "No. No. The litigants, the ones who keep suing, who claim that
40 cigarettes a day can kill you."
Mo: "Couldn't be. All those nice Senators give the tobacco farmers
millions a year in subsidies. I just know they wouldn't do that if we
were making something nasty."
Phil: "No, I tell you, you're losing it, old boy. We're in deep doo-
doo, or we will be soon enough."
Mo: "Well, why don't you hire the best lawyers, Phil? You've always
been a skinflint."
Phil: "I have. Why do you think we have a skyscraper? It's filled with
lawyers. Look, I just read that book by [former ITT chairman] Hal
Geneen. He says di-ver-si-fi-ca-tion is the key. So we've got to buy
things. Buy 'em cheap. Buy 'em now. Hotels. Weapons contractors.
Insurance companies. Buy, buy, buy."
Mo: "Goodness, sounds pretty radical."
Phil: "These are radical times, brother."
Mo: "Well, OK, but no weapons contractors -- they make things that
kill people, you know."
Phil: "OK, OK. Actually, Mo, I've put 17 or 18 investment banking
houses on retainer and we've got something cooking... General, General
... Uh... "
Mo: "Motors? General Motors? Wow! Their cars aren't so hot. They're no
Honda, but they're so-o-o-o BIG." (He swoons]
Phil: "Mo, Mo, get hold of yourself. Of course not General Motors.
Iacocca and Donald Trump are planning to buy them. It's a, a, General
Foods. Look, their performance has been questionable for quite a
while. But they've got so many, many MBAs -- and you need lots and
lots of MBAs to make it if you plan to buy EVERYTHING... to get BIG,
Mo: "Well, I'm sorry it's not General Motors. But, OK."
Time passes. Philip Morris buys General Foods for $5.6 billion in
1985. More consumer lawsuits are filed. The cigarette industry finally
loses a case. It's now mid-October 1988.
Phil: "Mo, we need to talk."
Mo: "Fine. Hey, how's your General thing doing?"
Phil: "Oh, Foods? Well, that's part of the problem, Mo. It turned out
to be nothing special. We lost the CEO. He went on with Pillsbury
right before (Britain's] Grand Met made their hostile takeover bid. I
think he's at Berlitz taking English lessons."
Mo: "Oh, my, my, my."
Phil: "The industry lost a lawsuit, Mo. We need to do more fast! I
picked up Hal's [Geneen] book again. And it says not to worry about
these little setbacks. You've got to keep buying stuff. You can mess
up phone companies, hotel chains, forest products companies. But keep
on buying. In the end, the bigger the company, the bigger the golden
Mo: "We're buying a parachute company? For heaven's sake, Phil. What
would granddaddy say?"
Phil: "No, Mo. Golden parachute. It's what you get if you make
a big enough mess. If you mess up a $100 million company, you go to
court. But mess up a $40 billion company and they give you $10 million
to get out of town."
Mo: "If you say so. The $10 million sounds great, but we're not a $40
Phil: "Well, that's just it. I think I've got a surefire deal cooking."
Mo: "Oh? ... BIG, BIG, BIG General Motors?" [He swoons again]
Phil: "Calm down. Now Daihatsu's looking to bag GM. But I've got a
bead on a dog."
Mo: "Dogs? Oh, Phil, I trusted you."
Phil: "No, no, not that kind of dog. You know, El Stinko. We've found
the perfect lackluster company to buy -- Kraft."
Mo: "Kraft? I thought Justin [Dart] bought them."
Phil: "No, you're behind the times as usual. Kraft bought Justin and
made Dart and Kraft, which was really Kraft and Dart. But the synergy
didn't work out. So Dart became Dart again, except this time it's
called Premark, and Kraft became Kraft again, except it kept a bunch
of Dart's assets. Get it?"
Mo: "Not really. But what about their parachutes?"
Phil: "It happened before parachutes were in vogue."
Mo [deflated]: "Oh."
Phil: "But that's yesterday, Mo. We're gonna go big time. Now I plan
to make an $11.4 billion bid for this Kraft. If you mix threatened
cigarettes, problematic General Foods and Velveeta pre-wrapped cheese
slices, what a loser, what a BIG, BIG, BIG loser! I mean almost $40
billion in sales. Oh... [He swoons but recovers quickly] Look, we have
to move fast..."
Mo [interrupting]: "The parachutes?"
Phil: "Yes ... oh my, oh my... If we can sell it later, it might just
be big enough to rope a $15 million parachute for each of us ... If
only I can find someone really big and bumbling on the look out for
something big and bumbling to take over... [He turns and thumbs
through his Roladex, then, picks up the intercom] Miss Marlboro, will
you try to get Roger Smith over at General Motors? [He sits back,
contented... mutters quietly] Roger... Roger... have I got a deal for
On Oct. 8, 1988, the Columbia Lions beat Princeton, 16-13, and stopped
football's longest ever losing streak at 44 games. Anything is
(c) 1988 TPG Communications.
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