PHILIP MORRIS TO BUY NABISCO FOR $18.9 BILLION

Cigarette Maker Plans To Combine It With Kraft To Make Food Powerhouse

The nation's largest cigarette maker, Philip Morris Cos., on Sunday
agreed to acquire Nabisco Holdings Corp. for $18.9 billion and plans
to combine it with its Kraft Foods Inc. to create a huge and
profitable food company to help offset its tobacco
liabilities.

The deal underscores two major trends in the world of consumer
products companies: the increasing size of food companies seeking to
improve their leverage against large, powerful grocery sellers such as
Wal-Mart Stores Inc. and Royal Ahold NV; and tobacco companies looking
for ways to unlock the value of holdings that have been depressed by
uncertainties stemming from tobacco litigation.

The merger creates a gigantic food company that combines such dominant
brands as Oreo cookies, Ritz crackers, Planters nuts and Life Savers
candies with the Philip Morris brands of Kraft, Jell-O, Maxwell House
and Oscar Mayer. More than 90 percent of Nabisco's U.S. brands are
leaders in their respective categories, the company said.

Based on 1999 financial figures, the combined Philip Morris and
Nabisco companies would have had revenue of $86.6 billion and
operating income of $16.3 billion. Kraft and Nabisco would have had
combined revenue of $34.9 billion and operating income of $5.5 billion
in 1999.

The acquisition makes Nabisco, which once was part of the large
tobacco company RJR Nabisco Holdings Corp., again part of a large
tobacco company, at least for now. Analysts said they expect Nabisco
might someday be spun off again.

Last year, RJR Nabisco Holdings Corp. created Nabisco Group Holdings
when it split up its food and tobacco units. RJR sold its
international tobacco business and spun off its domestic tobacco
company as R.J. Reynolds Tobacco Holdings Inc.

Two deals were announced Sunday. In the first deal, Philip Morris
bought Nabisco Holdings Corp., the food business. In the other deal,
R.J. Reynolds Tobacco, which once was part of RJR Nabisco Holdings,
bought Nabisco Group Holdings -- the corporate shell that will be left
when the food business changes hands.

Nabisco Group Holdings' single asset would be about $11.8 billion in
cash that would remain after the sale of the food business. After
paying $9.8 billion to acquire Nabisco Group Holdings, R.J. Reynolds
would realize net proceeds of about $1.5 billion.

``So RJR has bought its former parent and benefited to the tune of
about $1.5 billion,'' said Martin Feldman, a tobacco-industry analyst
with Salomon Smith Barney Inc. Feldman said RJR was the only realistic
buyer for the company because it, in addition to the cash, has
potential risk from massive litigation against the nation's five
biggest cigarette companies. The five companies have agreed to pay
$254 billion to settle lawsuits brought by the states but continue to
face additional claims.

Ann H. Gurkin, a tobacco-industry analyst at the brokerage firm
Davenport & Co., said she likes the transaction because it indicates
Philip Morris ``is focused on its entire business portfolio.'' Gurkin
and Feldman both said they expected that Philip Morris might someday
spin off its food business, as RJR did, although Philip Morris
Chairman Geoffrey Bible has said he does not plan to do so.

The acquisition writes the latest chapter in the high-profile history
of R.J. Reynolds over the past two decades as it struggled to overcome
the burden that tobacco had become to its corporate value. The company
began diversifying out of the tobacco sector in the 1960s and 1970s.
In 1979, R.J. Reynolds bought Del Monte Foods for $618 million and in
1985, it acquired Nabisco Brands for $4.9 billion.

Then, in the late 1980s, RJR Nabisco chief executive F. Ross Johnson
attempted a leveraged buyout of his company, but was outbid by
leveraged buyout specialists Kohlberg Kravis Roberts & Co. in a
corporate brawl that was chronicled in the bestselling book,
``Barbarians at the Gate.''

The company was taken private, and then taken public again in 1991,
and since then has been pursued by investors, including Carl Icahn,
who forced the company's board to consider restructuring.