Felicia Jones
May 2, 2011 History of Nabisco Incorporated Nabisco Food Groups has been one of the widely known names in the food industry. Nabisco is among the world’s largest manufacturers of cookies and crackers. Nabisco Brands was formed in 1981 through a merger of Nabisco and Standard Brands. In 1985 R.J. Reynolds Industries acquired Nabisco brands in one of the largest takeovers in business history. In earlier years the company was called N.B.C. In 1941 the company took on the name Nabisco, but it was in 1971 when the name became the official corporate name. The National Biscuit Company resulted from a merger in 1898 of the midwestern American Biscuit Company whom is a result of a merger of 40 midwestern bakeries, and the eastern New York Biscuit Company, formed from eight bakeries and a smaller firm, The United States Baking Company. The company had 114 bakeries and a capital of $55. The company held a monopoly on cookie and cracker manufacturing in the United States. The first chairman of the new company was Adolphus Green. Green was a Chicago lawyer and businessman who had negotiated the American Biscuit Company merger during the first 20 years of its existence. N.B.C. developed products that could be nationally identified with the company. All of its merchandise was marked with the company’s distinctive emblem: an oval topped by a cross with two bars, which represented the triumph of good over evil. The National Biscuit Company built its reputation on customer loyalty to recognized brands. In the early years of the 20th century, the company concentrated on expanding its line of cookies and crackers. Some successful products were Oreos, Fig Newtons, and Premium saltines. In 1902 N.B.C. introduced Barnum’s Animal crackers in a decorative box resembling a circus cage filled with animals. In 1912 both the Lorna Doones and Oreos were created and the Oreos became the world’s best selling cookie. In 1906 N.B.C. moved its headquarters from Chicago to New York, where the company’s factory was the world’s largest bakery. Green managed the company as if it was still a small company. He disliked delegating power. He personally inspected every company once or twice a year and most managers communicated directly with Green. His authoritarian style annoyed his colleagues and it led to frequent resignations from the board of directors. As a result, when Green died in 1917 a few of the original directors remained and the company management was in disarray. Roy E. Tomlinson was Green’s successor. Tomlinson had to reorganize N.B.C.’s administrative network. He worked his way up the corporate ladder. He delegated greater authority to other directors and to middle management, and remained head until the 1940’s. Tomlinson took over during World War I. During the war N.B.C. produced special bread ration for soldiers and he acted as advisor to the United States Food Administration. The rationing of wheat flour and sugar meant that cookies were less sweet and crackers were made of corn meal and rye. The 1920’s was prosperous for N.B.C. The company built new bakeries and in 1925, established its first foreign subsidiary in Canada. They also expanded their product line to include pretzels, breakfast cereal, and ice cream cones. Diversity came through acquisitions of other companies. In 1928, N.B.C. purchased the Shredded Wheat Company for $35 million. In that same year they also acquired the McLaren Consolidated Cone Corporation, the world’s largest manufacturer of ice cream cones. During the Depression sales slowed down. Some new products helped boost company sales during this time. In 1931 N.B.C. took over the Bennett Biscuit Company and concentrated on its most popular product line, Milk Bone Dog Biscuits, originally marketed as a dog’s desert. In 1934 N.B.C. met with the great success when it launched Ritz Crackers as a new prestige item. In 1941 the letters N.B.C. in the official trademark were exchanged for the word Nabisco. The change was part to reduce confusion with the recently established National Broadcasting Company. During World War II Nabisco was again faced with the problem of rationed flour, butter, sugar, and oil. Recipes were altered and substitutes were used. This was a troubled time for Nabisco. During the Depression, Nabisco had neglected many capital improvements, and many bakeries were outdated and in need of renovation. In 1945 the Nabisco board elected the young and energetic George Coopers as president. Due to Coopers new attitude he began to modernize Nabisco’s bakeries. Within ten years Coopers had spent more than $150 million renovating old plants and building new ones. The reconstruction program culminated in 1958 with the opening of an ultra-modern bakery and research center in Fair Lawn, New Jersey. In the 1950’s was the beginning of overseas expansion for Nabisco. The company formed
Manufacturing partnership with La Favorita Bakery in Venezuela, and in 1953 it established another partnership with the Famosa Bakery in Mexico. Nabisco had grown to become a major supplier of baked goods in the Latin America region. In 1960 Lee S. Bickmore became president over Coopers and the company began to accelerate acquisitions and overseas expansion. In 1961 Nabisco acquired the Cream of Wheat Corporation and the French firm Biscuits Gondolo. The next year, the company purchased the English bakery Frears, as well as New Zealands’s largest biscuit firm, Griffin and Sons. In 1963 Nabisco acquired Biscuits Berlin of France, the Danish baking concern Oxford Biscuit Fabrik, and the James O. Welch Company, the makers of Junior Mints and Sugar Babies. The following year, Nabisco bought Harry Trueller, one of West Germany’s largest confectionaries. Overseas acquisitions continued at a good pace in 1965 with the addition of the Italian biscuit compamy Saiwa and the bakery Galletas. By the end of the 1960’s Nabisco was the leading manufacturer of crackers and cookies not only in the United States, but in France, Canada, and the Scandinavian countries. They were also major suppliers to many other European and South American countries. The 1970s were a period of growth. Nabisco sales reached $1 billion mark for the first time in 1971, and $2 billion mark only five years later. In 1970 the company made its first Asian investment by establishing a joint venture with the Yamazaki Baking Company of Japan. Nabisco upgraded its facilities in 1975 with the construction of a modern flour mill in Toledo, Ohio, and a computerized bakery in Richmond, Virginia. That same year Nabisco moved its headquarters to a specially designed complex in East Hanover, New Jersey. During the 1970s Nabisco made its first acquisitions outside of the food industry, buying the toy maker Aurora Products and the drug company J.B. Williams, manufacturer of Geritol and Sominex, in 1971. Since the company was in an unfamiliar territory, the results were not satisfactory Aurora was unprofitable and was sold in 1977. The J.B. Williams unit was constantly at odds with the Federal Trade Commission and in 1982 Nabisco sold Williams to the Beecham Group for $100 million. Due to the inflation and high energy cost of the 1970s led Nabisco to consider the possibility of a merger with another large food concern. Early in 1981, Nabisco Chairman Robert Schaeberle and Standards Brands Chairman F. Ross Johnson announced plans for a merger between the companies. Standard Brands was formed in 1929 when the Fleischmann Company, the maker of products as yeast and gin: Chase & Sanborn, a coffee roaster: and the Royal Baking Powder Company all merged. The resulting company prospered through the Depression. Between 1929 and 1981, when Standard Brands merged with Nabisco, Standard Brands acquired several more important businesses, including Planters Nut & Chocolate Company in 1961 and the Curtiss candy Company, the makers of the Baby Ruth candy bar, in 1964. In 1981 the company paid $250 million to buy the Life Savers Company. In that same year the company brought a controlling interest in the Mexican cookie firm Gamesa for $45 million. In 1982 Nabisco Brands purchased the English biscuit company Huntley and Palmer Foods for $140 million. In 1985 the company formed a partnership with the Yili Food Company in China to produce Ritz Crackers and Premium Saltines for the Chinese market. Because of the nations growing concern over health, it brought a lot of concerns for Nabisco Brands during the 1980s. Therefore the company marketed low salt versions of Ritz Crackers, Saltines, and Triscuit Wafer. Nabisco also introduced Wheatsworth Crackers, made with whole wheat flour and containing no artificial flavors or colors. In a friendly takeover in 1985, Nabisco Brands was purchased by R.J. Reynolds , a worldwide manufacturer and distributor of tobacco, food, and beverage products, for $4.9 billion, creating the nations largest consumer-products company, with annual sales of more the $19 billion. Nabisco merged to avoid hostile takeover attempts, while Reynolds was interested in diversification. Later in the year R.J. Reynolds changed its name to RJR Nabisco, Inc. F Ross Johnson, the president of Nabisco and the former chairman of Standard Brands, became RJR Nabisco’s new president. In 1988 Johnson and a management group at RJR Nabisco attempted to take the company private in a $17.6 billion leverage buyout. The buyout was an attempt on Johnson’s part to boost stock prices. He lost control over the situation as other firms entered. The brokerage house of Kohlberg Kravis Roberts (KKR) upped the bidding for RJR Nabisco to $20.3 billion. The broker Forstmann Little, along with Procter and gamble and Ralston Purina, became the third bidder. KKR won with a record $24.5 billion in cash and debt securities, and replaced Johnson with Louis V. Gerstner Jr., the former president of American Express. KKR and Gerstner have pledged not to dismember the company but to mange it for the long run. In order to cover the company’s monumental debt, RJR Nabisco does plan some asset sales; the first was its European cookie and cracker business to BSN, France’s largest packaged-food group, for $2.5 billion. One of the most popular existing add-ons has been miniature versions of Oreo, the number one cookie in the United States. To accommodate the smaller sandwich cookies, Nabisco’s Chicago bakery added computer-supported production lines costing millions of dollars. The mini Oreo cookies could not fully meet national distribution until mid 1992 due to high consumer demand in Midwestern and southern states. Mr. Phipps pretzel was named 1991 “New Product of the Year” by Food & Beverage Marketing magazine. Other new products included Fat-Free Mister Salty pretzels, Gummi Savers Candy, LifesSavers Holes candy, Made’Em Myself cookie kits, and Zings cracker chips. The LifeSavers brand is the United States best selling line of hard rolled candy. The Fig Newton’s franchise has grown throughout the years to include raspberry, apple, and strawberry flavors. The cookie’s 100th anniversary in 1991 allowed Nabisco to launch a new promotional campaign that helped the brand’s visibility. By 1992 a fat free version came out and it helped to place Fig Newtons as the third selling cookie in the United States, after Oreo and Chips Ahoy! Aggressive advertising, promotion, and new biscuit product introductions also allowed Nabisco to expand its Latin American market. For example, in Brazil, cookie and cracker sales increased by 39 percent in 1991. Planters and LifeSavers were combined with Nabisco Brands as part as a total reorganization plan in 1991. Similar priority situations were discovered, resulting in decentralized marketing and new product development. Fleischman’s Division was created to focus on refrigerated products. The company’s most marketing brands, like Grey Poupon Dijon mustard and Milk Bone dog biscuits were reorganized into a Specialty Products Division. A Food Service Division began marketing to restaurants, fast food chains, airlines, schools, and others. Nabisco Brands was renamed Nabisco Food Groups. October 1992 Nabisco Foods Group had acquired Plush Pippin Corporation and Stella D’Oro Company. Plush Pippin, the Kent, was a Washington based manufacturer of premium frozen pies, had $22 million in sales for 1991. Stella D’Oro, marketer of bread sticks and baked specialty treats, reported $65 million. Since the last reconstruction in the 1950’s the company had neglected capital improvements. In 1993 Kraft General Foods acquire Nabisco ready to eat cold cereals from RJR Nabisco. In 2000 Phillip Morris Companies Inc. acquired Nabisco and merges it with Kraft Foods Inc. Phillip Morris Companies is the world’s largest tobacco firm. It controls about half of the United States tobacco market. The company also makes Benson & Hedges, Parliament and Virginia Slims cigarettes. Nearly, 40 percent of Phillip Morris’ sales and approximately one third of its profits were from its food and beer subsidiaries.

RJR Nabisco had been left reeling by Phillip Morris’s decision to cut prices on cigarettes. Managers are no longer confident that a company with well known brand names can automatically produce higher profits by raising prices. RJR common stock has never traded lower than it did a week earlier.

[pic] Morgan Stanley is trying to raise $1.6 billion for RJR Nabisco, selling 93 million shares. At the $17 minimum price, the promised annual dividend yield is 3.1 percent. That is higher than other food stocks, although it is arguable whether this is really a food stock. The dividends depend on food profits, but the shares represent ownership in all of RJR Nabisco, including tobacco.

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