Looking back in time to the 1980's, Philip Morris was not always the multifaceted diversified conglomerate that you see today. They began pursuing a strategy of diversifying out of the tobacco business starting in 1969. On October 18, 1988, Philip Morris offered to purchase all Kraft common stock at $90/share in cash. Philip Morris had hoped that the acquisition of the new business could reduce variations in corporate profits by expanding its lines of business. But the underlying tone of the reduction in domestic profits on its core tobacco products definitely played a major role in the change in business direction.
Kraft, Inc. was a very solid company in and of itself. It had just recently spun off all its businesses that resided outside its core food business with the divestiture of Duracell batteries, its last nonfood asset. Kraft had a low Debt to Value ratio at 15% and all three of its divisions were doing well with name brands that were very popular to the public in general. The takeover proposal they received from Philip Morris definitely took them by surprise but looking back at the state of the economy at the time, maybe it should not have.