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Case study: Krafts takeover of Cadbury

By Scott Moeller

The story In 2009, US food company Kraft Foods launc ed a ost!le b!d for Cadbury, t e UK"l!sted c ocolate maker# $s became clear almost e%actly t&o years later !n $u'ust 20((, Cadbury &as t e f!nal ac)u!s!t!on necessary to allo& Kraft to be restructured and !ndeed spl!t !nto t&o compan!es by t e end of 20(2: a 'rocery bus!ness &ort appro%!mately *(+bn, and a *-2bn 'lobal snacks bus!ness# Kraft needed Cadbury to prov!de scale for t e snacks bus!ness, espec!ally !n emer'!n' markets suc as Ind!a# . e c allen'e for Kraft &as o& to buy Cadbury & en !t &as not for sale# The history Kraft !tself &as t e product of ac)u!s!t!ons t at started !n (9(+ &!t t e purc ase of a Canad!an c eese company# /y t e t!me of t e offer for Cadbury, !t &as t e &orlds second"lar'est food con'lomerate, &!t seven brands t at eac 'enerated annual revenues of more t an *(bn#

Cadbury, founded by 0o n Cadbury !n (122 !n /!rm!n' am, 3n'land, ad also 'ro&n t rou' mer'ers and demer'ers# It too ad recently embarked on a strate'y t at &as 4ust be'!nn!n' to s o& results# 5&ners !p of t e company &as 29 per cent from t e US, desp!te !ts UK l!st!n' and ead)uarters# 5nly 6 per cent of !ts s ares &ere o&ned by s ort"term traders at t e t!me of t e Kraft b!d# The challenge 7ot only &as Cadbury not for sale, but !t act!vely res!sted t e Kraft takeover# S!r 8o'er Carr, t e c a!rman of Cadbury, &as e%per!enced !n takeover defences and !mmed!ately put to'et er a stron' defens!ve adv!sory team# Its f!rst act &as to brand t e 926 pence"per"s are offer :unattract!ve;,

say!n' t at !t :fundamentally undervalued t e company;# . e team made clear t at even !f t e company ad to succumb to an un&anted takeover, almost any ot er confect!onery company <7estl=, Ferrero and >ers ey &ere all ment!oned? &ould be preferred as t e buyer# In add!t!on, @ord Aandelson, t en t e UKs bus!ness secretary, publ!cly declared t at t e 'overnment &ould oppose any buyer & o fa!led to :respect; t e !stor!c confect!oner# The response Cadburys o&n defence documents stated t at s are olders s ould re4ect Krafts offer because t e c ocolate company &ould be :absorbed !nto Krafts lo& 'ro&t con'lomerate bus!ness model B an unappeal!n' prospect t at s arply contrasts &!t t e Cadbury strate'y of a pure play confect!onery company;# @!ttle d!d Cadburys mana'ement kno& t at Krafts plan &as to spl!t !n t&o to el!m!nate !ts con'lomerate nature and become t&o more focused bus!nesses, t ereby creat!n' more value for !ts s are olders# The result . e Cadbury team determ!ned t at a ma4or!ty of s are olders &ould sell at a pr!ce of rou' ly 1-0 pence a s are# $ deal &as struck bet&een t e t&o c a!rmen on 0anuary (1 20(0 at 120 pence per s are plus a spec!al (0 pence per s are d!v!dend# . !s &as approved by 92 per cent of Cadbury s are olders t&o &eeks later# The key lessons In any takeover, espec!ally a cross"border deal !n & !c t e ac)u!red company !s as &ell kno&n as Cadbury &as !n t e UK, t e transact!on &!ll be front"pa'e ne&s# In t !s case, !t &as t e lead bus!ness story for at least four mont s# Fortunately, t !s deal ad no monopoly or compet!t!on !ssues, ot er&!se t ose re'ulators could also ave been !nvolved# /ut as!de from any re'ulators, most ot er commentators &!ll lar'ely be d!stract!ons# It !s !mportant for t e ac)u!r!n' companys mana'ement and adv!sers to stay focused on t e deal !tself and t e real dec!s!on"makers B t e s are olders of t e tar'et company#

$s t !s deal demonstrates, t ese s are olders may not <and often &!ll not? be t e lon'"term trad!t!onal o&ners of t e tar'et company stock, but rat er very rat!onal ed'e funds and ot er arb!tra'eurs <!n Cadburys case, o&n!n' -( per cent of t e s ares at t e end?, & o are s&ayed only by t e offer pr!ce and o& )u!ckly t e deal can be completed# 5t er stake olders may ave le'!t!mate concerns t at need to be addressed but t !s can usually be done after t e deal !s completed, as Kraft d!d