Why Philip Morris Gobbled Up Nabisco

Anyone interested in quick shell game? Look no further than the business pages.

Tobacco giants Philip Morris and R. J. Reynolds unveiled a deal Sunday that would make any street-corner sleight-of-hand practitioner proud. Philip Morris will supplement its already prodigious Kraft Foods properties by buying Nabisco Holdings, producer of national treasures like Oreos and Ritz crackers, for $14.9 billion. Once that transaction is completed, Nabisco Group Holdings (the parent company of Nabisco Holdings), will be acquired by the R. J. Reynolds tobacco company — the same company Nabisco Group divested itself of just one year ago — for $9.8 billion.

Confused? Well, there is a germ of reason amidst all this dizzying dealmaking: As a result of the RJR-NGH merger, NGH manages to consolidate any pending lawsuits under the umbrella (and considerable legal expertise) of RJR. Meanwhile, analysts theorize, Philip Morris will move quickly to spin off its tobacco holdings.

Sunday's RJR-Philip Morris machinations are only the latest round in the companies' ongoing attempts to isolate risky tobacco holdings. Faced with an increasingly unfriendly American marketplace, the corporations are scrambling to protect the stock market performance of non-controversial products (such as like Kraft mayonnaise and macaroni and cheese) from from the legal and legislative vagaries affecting the domestic tobacco market.

Don't cry too much for Big Tobacco, though — analysts predict the spun-off companies will worry less about the U.S. market as they focus their energies on the burgeoning demand for cigarettes abroad. In tobacco-mad China and Africa, nothing stands between the Marlboro Man and a whole new generation of pack-a-day smokers.