Cigarette maker Altria Group (MO 0.56%) is best known for its Marlboro brand, and under its current corporate structure, tobacco dominates its overall business. With the exception of a small wine division and its stake in beer company SABMiller, Altria gets all of its revenue and income from cigarettes, cigars, and smokeless tobacco items, like snuff and newer e-cigarette and e-vapor products. Yet it wasn't so long ago that Altria had a much broader business. In particular, Altria had substantial exposure to the food industry in the late 1980s and 1990s, and it was only in the 2000s that the tobacco giant redefined its core mission to concentrate once again on tobacco. Let's take a look at Altria's history to learn more about its fling with the food industry.

Image source: Kraft Heinz.

1988: Altria buys Kraft

The most obvious and best-known food-related event for Altria was in 1988, when the company paid $13.1 billion to buy Kraft Foods, which is now part of Kraft Heinz (KHC -0.99%). Although the price tag might seem modest by today's standards, at the time, the Kraft merger was the largest acquisition in U.S. history outside of the energy sector, and it created the world's largest consumer goods company.

The deal didn't happen overnight. Initially, Altria, which at the time hadn't yet come up with its current corporate name and was known as the Philip Morris Companies, offered $90 per share for the food giant. Kraft rebuffed the offer, arguing that it wanted to remain independent and proposing to make major internal corporate changes to reorganize its business. Yet Altria steadily applied pressure, and a higher $106 per share bid finally got the deal done.

Rewind to 1985: Altria buys General Foods

What many investors don't realize, though, is that at the time of the Kraft merger, Altria already had exposure to the food business. Three years earlier, Altria had bought General Foods, spending $5.8 billion in cash. The deal made history at the time as the largest non-oil merger and brought brands like Maxwell House, Birds Eye, and Jell-O under the Altria corporate umbrella.

Altria's move came in response to rival Reynolds American's (RAI) acquisition of Nabisco Brands earlier in the year. Reynolds' $4.9 billion created the first massive tobacco-food combination, and Altria determined that it couldn't afford to get left behind in the trend. The later purchase of Kraft only added to Altria's food empire and helped it compete effectively against the newly dubbed RJR Nabisco.

Image source: Mondelez International's

2000: Altria buys its rival out of the food business

For more than a decade, both companies moved forward with their combined tobacco and food products. Yet by the end of the 1990s, the environment for Big Tobacco had changed. On the one hand, RJR Nabisco had been taken private in a massively leveraged buyout, and huge amounts of debt presented a major challenge to the company. On the other hand, tobacco litigation was reaching a peak, and concerns about potentially catastrophic liability from the tobacco side of the businesses sent share prices for Altria down sharply.

In 2000, RJR Nabisco blinked first, resulting in the sale of the Nabisco unit to Altria. Altria paid $14.9 billion to buy out the food business, plus assuming $4 billion additional debt from Nabisco as part of its consideration for the deal.

2001: Kraft goes public

The following year, Altria made an initial public offering of the Kraft Foods unit. The tobacco giant offered about a sixth of its stake in Kraft to the public, but it did so in the form of a two-class stock structure that left Altria with roughly 98% voting control of Kraft. Because it retained 84% of the economic interest in Kraft, Altria was still able to include Kraft's earnings as part of its consolidated accounting. The proceeds from the offering helped Altria pay down some of the debt it had incurred in the purchase of Nabisco from Reynolds.

2007: Altria spins off Kraft

Yet despite all of Altria's wishes to be diversified, investors weren't entirely comfortable with the combined company. Tobacco remained a controversial area, and stock valuations didn't always reflect what executives believed was the full value of the conglomerate. In response, Altria decided to spin off its remaining stake in Kraft, allowing it to become a completely independent company.

Kraft's then-CEO Irene Rosenfeld, who still leads the subsequently spun-off Mondelez International (MDLZ -0.20%) food company, explained in an interview some of the reasons for the spinoff. In her words, separating Kraft "would make it easier for us to use our stock as currency and for potential acquisitions, [provide] the opportunity to add to our scale in geographies outside North America, and a variety of other ideas that really can help people to eat and live better today." Altria's then-CEO Louis Camilleri described the move as a "major step in our commitment ... to deliver superior shareholder value" and expressed his belief that "an independent Kraft will enjoy enhanced flexibility to grow its business" going forward.

Staying hungry

Since the Kraft spinoff, Altria has focused its business even more narrowly, retaining its domestic business while separating off its international tobacco operations. Yet many Altria investors still wonder what the right balance is between wanting a tobacco pure play and having valuable diversification into other consumer products. Altria's history with food indicates that there are challenges associated with efforts to become a broader conglomerate, but that doesn't mean it won't pursue similar efforts in the future.