MERGER AND ACQUISITION OF CADBURY BY KRAFT FOODS

TOPIC: MERGER AND ACQUISITION OF CADBURY BY KRAFT FOODS

SYNOPSIS

ABSTRACT:  Acquisition : The battle between Kraft and Cadbury ▬ The process of M&A ▬ Kraft goals ▬ Why Cadbury? ▬ Risks and stakes involved Structure of the deal Acquisition outcomes ▬ Challenges for the acquisition ▬ Impact and consequences ▬ Conclusions

 

OBJECTIVE:      To study Cadbury and Kraft foods individually. To understand the process of merger and acquisition between Cadbury & Kraft. Implications of Kraft and Cadbury takeover. To understand the terms of the agreement. To understand the before and after deal challenges, impact and consequences.

APPLICATION:  To expand our understanding and knowledge of mergers and acquisitions in terms of strategic planning and the issues surrounding the process.

Use of secondary data available on internet. strategies. Presented by: Yamini Soni A1802010281 Neha Jindal A1802010333 . To analyse the after deal effects such as work culture and environment shocks.   To understand risks and consequences in an acquisition deal. METHODOLOGY:   A qualitative research approach was adopted in this study. To study the operating performance of acquiring companies and comparing their performances before and after merger. planning and working of two companies.

This recommended offer represents a compelling opportunity for Cadbury Shareholders. among others. Under the agreement. Suchard and Cote d'Or. providing both immediate value certainty and upside potential in the combined company. values and people throughout the world. Kraft shares fell 0. Milka. accelerates long-term growth and delivers highly attractive returns." Commenting on the Offer. the world's second-biggest food company. We believe they will thrive as part of Kraft Foods. or 840 pence per share. Chairman and CEO of Kraft Foods.5 billion).09.5 billion pounds (US$18. while maintaining financial discipline. We will now work with the Kraft Foods' management to ensure the continued success and growth of the business for the benefit of our customers.ABSTRACT Kraft Foods sealed a deal for Cadbury as the famed British chocolate maker accepted a sweetened bid worth some US$19 billion creating a world leader in confections. Chairman of Cadbury. giving the US group the brands of Dairy Milk and Creme Egg to go along with Kraft's Toblerone." . Irene Rosenfeld. Cadbury shareholders will also receive 10 pence per share via a special dividend.14 per cent to US$55. Ending a bruising months-long hostile takeover battle. lifting Kraft's offer to 11. heritage and people. said: "We have great respect for Cadbury‟s brands. consumers and employees.41. For Kraft Foods Shareholders it transforms the portfolio. The deal would make US-based Kraft. Commenting on the Offer.9 billion). Roger Carr. said: "We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage. Investors welcomed Tuesday's news.9 billion pounds (US$19. Cadbury's board agreed to an improved offer valuing the British group at 11. one of the biggest global players in chocolate and confections. the companies said in a statement.57 per cent to US$29. sending Cadbury's US-listed shares up 6.

England. which he produced himself. the industry's secondlargest globally after the Mars-Wrigley. and drinking chocolate. At this time the company was known as 'Cadbury Brothers of Birmingham'. coffee. During this time a partnership was struck between John Cadbury and his brother Benjamin. which saw the separation of its global confectionery business from its U. beverage unit. John Cadbury began vending tea. TYPE INDUSTRY FOUNDED REVENUE PARENT COUNTRY : subsidiary of Kraft foods : confectionery : 1824 : $50 billion : united Kingdom HISTORY In 1824. . supplying mainly to the wealthy due to the high cost of manufacture at this time. at Bull Street in Birmingham. Headquartered in Cadbury House in the Uxbridge Business Park in Uxbridge. The firm was known as "Cadbury Schweppes plc" from 1969 until a May 2008 demerger. Cadbury was acquired by Kraft Foods in February 2010.Cadbury is a British confectionery company. The two brothers opened an office in London and in 1854 received the Royal Warrant as manufacturers of chocolate and cocoa to Queen Victoria. John Cadbury later moved into the production of a variety of Cocoas and Drinking Chocolates being manufactured from a factory in Bridge Street.S. England and formerly listed on the London Stock Exchange. London.

In the US. Mistic and Stewart's were sold by Triarc to Cadbury Schweppes in 2000 for $1. Schweppes Beverages was created and the manufactures of Cadbury confectionery brands were licensed to Hershey's. Fry & Sons. By this point. Cadbury's launched its Dairy Milk bar. . Tasmania and in 1919 undertook a merger with J.In 1861. DEMERGERS In March 2007. with the drinks business becoming Dr. In February 2010 Cadbury was acquired by Kraft foods. Cadbury Schweppes purchased Royal Crown from Triarc. Pepper Snapple Group Inc. Typhoo Tea and more. Cadbury's was the brand leader in the United Kingdom. Cadbury opened their first overseas factory in Hobart. The demerger took effect on 2 May 2008. Canada Dry. In December 2008 it was announced that Cadbury was to sell its Australian beverage unit to Asahi Breweries. FINANCIAL EXPANSION MERGERS Cadbury merged with drinks company Schweppes to form Cadbury Schweppes in 1969.45 billion. In 1918. another chocolate manufacturer which saw the integration of well-known brands such as Fry's Chocolate Cream and Fry's Turkish delight. Cadbury Schweppes went on to acquire Sunkist. In 1905. and it becomes the company's best selling product by 1913. it was revealed that Cadbury Schweppes was planning to split its business into two separate entities one focusing on its main chocolate and confectionery market and the other on its US drinks business. John Cadbury‟s sons Richard and George took over the business. S. Snapple. In October of that same year.

By 1930.9 billion (2008) 98. it was the largest dairy company in the United States and the world. McInnerney with financing provided by Goldman Sachs. 2008. replacing the American International Group. McInnerney operated the Hydrox Corporation. In 1923 he went to Wall Street to convince investment bankers there to finance his scheme for consolidating the United States ice cream industry. Through acquisitions it expanded into a full range of dairy products. Illinois Irene Rosenfeld. It markets many brands in more than 155 countries. a Chicago suburb. The company is headquartered in Northfield.com HISTORY The firm today known as Kraft Foods was formed on 10 December 1923 by Thomas H." He persevered and . eight years after it was founded. and beverage corporation headquartered in the United States and the secondlargest in the world. it is listed on the New York Stock Exchange and became a component of the Dow Jones Industrial Average on September 22. A public company.8 billion (2008) ▲ US$2.kraftfoodscompany.2 billion (2008) ▼ US$3. Illinois. Inc. He initially found "hard sledding" with one banker saying the dairy industry "lacked dignity. an ice cream company located in Chicago. Illinois. Illinois (1903) Northfield. (NYSE: KFT) is the largest confectionery. Type Founded Headquarters Key people Industry Revenue Operating income Net income Employees Website Public (NYSE: KFT) Chicago. Chief Executive Officer Food Processing Finance ▲ US$42.000 (2008) www. Lehman Brothers and Tobey & Kirk. exceeding Borden. The firm was initially set up to execute on a roll up strategy in the then fragmented United States ice cream industry.KRAFT FOODS Kraft Foods. food.

National Dairy Products acquired the Kraft Phenix Cheese Corporation.convinced a consortium including Goldman Sachs and Lehman Brothers to finance a roll-up strategy.National acquired more than 55 firms between 1923 and 1931). Pennsylvania the resulting firm was then listed on the New York Stock Exchange with the offer of 125. other Cheese. National Dairy Products Corporation was formed in 1923 in a merger of McInnerney's Hydrox with Rieck McJunkin Dairy Co of Pittsburgh. The firm grew quickly through a large number of acquisitions. As is typical in a roll-up strategy. Year Firm 1924 W. other Ice cream. international New York. Examples of firms acquired include: (list is not complete . Hoffman 1924 Dunkin Ice Cream 1925 Sheffield Farms 1926 Breyer's Ice Cream 1928 Breakstone Brothers 1928 General Ice Cream 1929 Hiland Dairy 1930 Kraft-Phenix 1931 Consolidated Products Dairy Sector Ice cream Ice cream Location Pennsylvania Illinios Fluid milk.E. other dairy Pennsylvania New York New York. Jersey New East In 1930. acquisitions were primarily for stock in National rather than cash. As a result of his efforts. ice cream. New York other Ice cream Fluid milk. cheese Ice cream Fluid milk.000 shares having been oversubscribed. . Coast Kentucky US.

after months of speculation. Kraft's announcement was not met with the same protests. Altria announced on January 31.[15] with options such as buying Wendy's fast food chain or selling off Post cereals and Maxwell House coffee. its pet snacks division in 2006.FINANCIAL EXPANSION: In 2000.9 billion and merged the company with Kraft Foods the same year.[15][16] While two years earlier firestorms of protest had arisen over plans for American PepsiCo's hostile takeover of the French company. On January 31.1% stake in the company. . Philip Morris (renamed Altria in 2003) acquired Nabisco Holdings for $18. In July 2007. that it would spin off all the remaining Kraft Foods shares to Altria's shareholders.7 share of Kraft for every Altria share they own. the company announced that its 88. Philip Morris sold 280 million Kraft shares via the thirdlargest IPO of all time. it sold its sugar confectionery division to Wrigley. including iconic French biscuit brand Lefebvre-Utile. 2007. juice drinks and functional water in 2007 and some grocery brands in 2006. while doing minor divestitures .2 billion. Kraft is now an independent publicly held company.[8] In 2001. retaining an 88.including its hot cereals division in 2007. 2007. the company bought Groupe Danone's biscuit (cookie) and cereal division for $7. in part because Kraft agreed not to close French factories and keep the new merged divisions headquarters near Paris for at least three years. each will be given approximately 0.1% stake would be spun off to Altria shareholders at the end of March 2007. Investor Nelson Peltz bought a three-percent stake at Kraft Foods and is talking with the executives on revitalizing the business. In 2004.

Cadbury promptly rejects the bid. SEPT 21 . OCT 22 .4 percent stake.Cadbury's CEO says he does not believe Kraft's offer for his company made strategic or financial sense SEPT 30 . CEO Rosenfeld says she will not overpay for Cadbury. which would give a time frame for Kraft to come up with a formal bid. The shares fail to react as a counter bidder for Kraft is seen increasingly unlikely. the world's second richest man and a leading shareholder in Kraft with a 9. warned the U.Kraft goes public with the bid. NOV 3 .ACQUISITION: THE BATTLE BETWEEN KRAFT AND CADBURY AUG 28 – Initial Bid at 755 pence per Cadbury Share SEPT 7 . NOV 9 .S.Cadbury contacts the UK Takeover Panel to request a "put up or shut up" request be sent to Kraft. SEPT 25 . SEPT 16 .Cadbury posts upbeat third-quarter trading with underlying sales up 7 percent as it raise its 2009 target for sales and profit margin growth. food group not to overpay for Cadbury. OCT 21 .UK Takeover Panel rules that Kraft has until 1700 GMT on Nov 9 to make a formal offer for Cadbury or walk away for six months.Cadbury's Management rejects the bid saying it was an "unappealing prospect" being absorbed into Kraft's "low growth conglomerate business".Nestle and Hershey report third-quarter results but neither mention a speculated joint bid for Cadbury with Nestlé's focus on increasing its share buyback.Warren Buffett.Kraft's third-quarter results disappoint investors with weakerthan-expected revenue and as it cut its 2009 sales forecast. SEPT 12 .Kraft formalises its bid at the same terms for Cadbury as the .

JAN 5 . MAR 08 -Cadbury shares was de-listed. Ferrero pulls out.Cadbury issues its official defence document promising bigger dividends and strong growth as Cadbury reminds its shareholders that Hershey and Ferrero may bid. say sources close to the deal. JAN 12 .Kraft had secured over75% of the shares thus finalizing the deal.Kraft sweetens bid with 60p more cash but cuts shares on offer to keep offer price unchanged. DEC 4 . DEC 18 . NOV 18 . NOV 23 .Cadbury fires last words in its defence as media reports say that Hershey is looking at mounting a solo bid.valued at 717p.Cadbury shares hits all-time high of 819-1/2 pence on speculation of a battle between Kraft and rivals for the British chocolate maker. FEB 05. but many analysts doubt whether Hershey can come up finance JAN 19 – Cadbury accepts Kraft‟s offer of GB£11.300p in cash and 0.2589 new Kraft share for each Cadbury share -.original approach -.1 billion pounds. Kraft says its bid is now worth 713 pence a share or 10.Both Italy's Ferrero and Hershey said separately they were reviewing a possible bid for Cadbury but gave no assurance that either would make an offer.Kraft posts its offer document to Cadbury shareholders starting off a two-month fight for the British group under UK takeover rules.Cadbury CEO Todd Stitzer tells Reuters in an interview that a significant number of its major shareholders do not believe Kraft's bid reflects Cadbury stand-alone value.7 Billion ending months of Corporate battle valuing each Cadbury share at 840 Pence. .Cadbury gives its final official defence against Kraft bid reporting robust trading and rejecting the bid on valuation. DEC 14 . JAN 14 .

Winner 3 : Stock market speculators They employ a merger arbitrage were they take two positions simultaneously for example a short position on Kraft‟s shares and long position on Cadbury‟s shares and the difference between these two positions represents their merger arbitrage Winner 4: Senior managers of Cadbury If the deal goes ahead they are going to get a bumper exit packages. If the acquisition does not materialise then they will keep their jobs plus they will also get bonus for fighting Kraft‟s takeover.WINNERS & LOSERS Winner 1: Cadbury’s Shareholders Sep 7. because of announcement by Kraft of its intention to acquire Cadbury.2 billion. job security Losers: Kraft‘s shareholders They have paid over the odds because they are paying a 40% premium to the pre-September 2009 share price level. Winner 5 : Senior managers of Kraft i) Increase in their salaries because salaries are positively correlated to size of the firm ii) Non quantifiable benefits for example increase in pride.(between £5 million and £20 million pounds). . Winner 2 : M&A advisors Most M&A advisors earn between half a percent and two percent of the deal‟s values. 2009 the market value of Cadbury increased by 40% to £10.

(This could have also been Window Dressing) Cadbury had a very significant proportion of long-term investors interested and involved in the stock.   Kraft sold its Pizza brands including DiGiorno and Tombstone to Nestle and use proceeds from the $3. It got approval from EU Antitrust committee by divesting its Polish and Romanian chocolate businesses. This was done to maintain competition in the market.KRAFT STRATEGIES  Kraft foods offered a cash cum stock deal to make it lucrative to the share holders and also it announced a 10 pence bonus dividend to shareholders to lure them to accept the deal. Kraft made its proposals directly to Cadbury's shareholders over the heads of its board. After the initial rejections by Cadbury Management. It sweetened the deal by offering more cash and reducing the shares offered.   CADBURY’S DEFENSIVE STRATEGIES  Cadbury moved the UK Takeover panel to pressurize Kraft. Cadbury was successful in boosting its 3rd Quarter results which made the company more valuable. and were able to force Kraft to   . This will be more useful for the shareholders given that the share price of the Kraft would be more volatile due to fresh issue of Kraft shares. Cadbury discussed a rival offer with Pennysylvian company named Hershey (White Knight).7 billion deal to boost the cash component of its Cadbury bid.

Cadbury published documents in defence against the hostile strategy of Kraft on January 12 2010.come to the UK and talk to the investors. This forced Kraft to negotiate instead of just rolling out an offer. Optimal timing of this exercise is crucial Communication synchronization – Somerdale factory event Kraft Foods announced in December 2010 to move Cadbury's Headquarters and transfer Cadbury's to holding-company based in    . This prohibited Kraft to further lower the deal value by the use of hedge funds.  A big part of Cadbury‟s defence strategy rested on limiting the impact of hedge funds in determining the deal. Cadbury constantly monitored their top 50 to 75 investors who might be contacted by Kraft them. Corporate communication played an important part in Cadbury‟s defence. The CEO and board were vocal about the lack of strategic purpose in the deal. It was a very tactical engagement to build people‟s expectations of what value Cadbury could deliver in the face of Kraft‟s offer.    POST MERGER EVENTS: Workforce management & Tax avoidance  Strong focus on Post –Merger Integration plans especially among employees due to initial bitter batter in the corporate communications Ensure key talent is retained due to the weak relationships among the management and the stakeholder warnings such as Warren Buffets Debt loaded on Kraft foods due to the merger makes workforce optimisation imminent for the success of the deal.

whereas Kraft targets long-term organic revenue growth of 4% and EPS growth of 7 to 9% on a standalone basis. In recent years Kraft ran a large project to implement the SAP ERP 6.1% boost in European revenues – new market entry for product portfolio Entry of Kraft productions into India and Latin America through Cadbury channels with joint custom product development It will slash $550 million (£379 million) directly from operational costs after its £11.Switzerland in an attempt to avoid paying millions of pounds of tax to the UK Government. which SAP billed as one of its largest global ERP implementations KRAFT-CADBURY – TODAY 13 % rise in the income – suggests the synergy of the deal in action and integration plan 90 % of the income rise contributed by Cadbury division – right judgement from Kraft for geographical diversification of poor American market 34.5 billion acquisition of CADBURY last year . Cadbury is highly complementary to Kraft‟s geographical footprint and will increase developing markets‟ contribution to Kraft‟s net revenue from about 20% to about 25%.  On Jan 8th the Indian Tax Authorities are seeking clarifications from Kraft regarding the deal to check for tax-evasion allegations PLANS AFTER TAKEOVER KRAFT is the world‟s largest confectionery company. The higher long-term growth rates in revenues and bottom lines will be driven by revenue synergies and $625 million identified annual cost savings. Kraft believes combining KFT&CBY can be justified by the following value propositions: The combined company could target long-term organic revenue growth in excess of 5% and sustainable long-term EPS growth of 9 to 11%.0 system.

despite the fact that Kraft promised to keep it open (that was actually a bit weird. Cadbury admitted that a troubled SAP implementation over the previous two years had held back its financial performance. including marketing and sales savings. Cadbury is now running SAP ERP. In 2007.000 users. In 2008. It also runs an SAP human resources platform. contributing to a £12 million deficit on its balance sheet and leading in part to large job cuts. Both companies have participative and helping in nature.Out of $675 million (£430 million) total savings from the merger.0 system. An additional $250 million costs will be cut from “general and administrative” expenses. as Cadbury itself had announced that Keynsham would be closed at some stage in the future). is that this is just the first of many cuts that will be brought forward during the next few years.And the fear. Kraft also began using SAP NetWeaver master data management to integrate information from a range of legacy systems into the new SAP ERP system Cadbury has a more chequered history with SAP . before a demerger from drinks company Schweppes. The project began in Europe and then was extended to Kraft's home market. In recent years Kraft ran a large project to implement the SAP ERP 6. Cadbury outsources its datacentres to HP. the US. as much in the mind of Peter Mandelson as in the minds of all Cadbury‟s workers. of course. There is alot of cultural changes in both the companies so it is difficult for the companies to cope up with these changes. which SAP billed as one of its largest global ERP implementations. so it is difficult to survive for cadbury‟s LESSON FROM KRAFT’S CADBURY TAKEOVER The Keynsham plant near Bristol will close. . linking in to the data of over 12. Separately. Both companies have employee performance effective and hard working But the kraft‟s employe e are rewarded on achievement to encourage and destroy competition and even inside the company employees are not much friendly as like Cadbury and there is a competive nature among employees . some $300 million will come from day to day operations.

for instance. employee-owned companies have outperformed FTSE All-Share companies each year by an average of 10%.6% compared to FTSE All-Share companies share prices. Over the last 17 years. and if our offer is successful. which elicited the following emollient words from Kraft: “We strongly support certification as a way to improve sustainability in cocoa farming. it‟s been too bloody miserable. we look forward to maintaining this heritage. But it is still a wretched outcome. Just before the Cadbury‟s Board accepted the bid it announced that Green & Black‟s would be moving its entire range to Fair-trade by the end of 2011. however good a deal it might be for Cadbury shareholders). employee-owned companies‟ share prices were up 27. Apart from the odd sardonic chuckle as the process unfolded (with that arch-globalise Mandelson shedding a few crocodile tears at another „great British company‟ being gobbled up by „predators‟ like Kraft – or Warren Buffet (who owns about 9% of Kraft) complaining that it‟s a really bad deal for Kraft shareholders. . And surely a complete failure on the part of Cadbury‟s shareholders to tell the difference between „a good price‟ and „lasting value‟. Cadbury and Green & Black‟s have proud histories in ethical sourcing.3% over the quarter. In the third quarter of 2009.. They point to the pledges made by Kraft to stick by Cadbury‟s ethical and Fairtrade commitments. which were up 21. But we are still so stuck in our wretchedly unsustainable ways when it comes to ownership structures within the capitalist economy. The interesting thing is that employee-owned companies regularly outperform those in the FTSE All-Share Index.” Just so long as you ignore the unmistakable sound of grinding teeth behind the reassuring words perhaps that really is something to be optimistic about. The optimists would have curmudgeons like me cheer up a little. so we welcome this step by Green & Black‟s.

except as required by applicable law or regulation. . many of which are beyond Kraft Foods' control. which are or may be based on Kraft Foods' plans. statements about the benefits of the combination and other such statements that are not historical facts. as amended from time to time. that could cause Kraft Foods' actual results to differ materially from those indicated in any such forward looking statements. but are not limited to. filed by Kraft Foods in connection with the offer. but are not limited to. including the registration statement on Form S-4. estimates and projections.CONCLUSION This announcement contains forward-looking statements regarding Kraft Foods' combination with Cadbury. the risk factors. Kraft Foods' most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Such factors include. Such statements include. Kraft Foods disclaims and does not undertake any obligation to update or revise any forward-looking statement in this announcement. These forward-looking statements are subject to a number of risks and uncertainties. set forth in Kraft Foods' filings with the US Securities and Exchange Commission ("SEC"). as they may be amended from time to time.

indiatimes.com/india/news/kraft-gets-conditional-eunod-for-cadbury-deal/16/06/82536/on http://www.com/business/international-business/Buffettopposes-Krafts-takeover-of-Cadbury/articleshow/5482536.com/money/report_taxman-at-cadbury-door-seekskraft-deal-details_1491753 http://timesofindia.com/articles/15896/chocolate-boxingbehind-scenes-kraft-and-cadbury/ http://www.com/article/idINIndia-45520920100119?pageNumber=2 http://knowledge.cms http://in.dnaindia.wharton.com/managing/content/feb2010/ca2010028_928 488_page_2.upenn.org/wiki/Cadbury_plc http://expertscolumn.BIBLIOGRAPHY http://en.wikipedia.com/content/potential-winners-and-losers-proposedacquisition-cadbury-kraft http://ceoworld.org/wiki/Kraft_Foods http://en.com/business_hieroglyphics/mergers-acquisitions/mergerintegration/the-kraft-cadbury-marriage-will-it-work/ http://www.htm .insideinvestorrelations.cfm?articleid=4451 http://www.business-standard.wikipedia.businessweek.reuters.edu/india/article.alcibi.biz/ceo/2010/01/19/why-cadbury-agrees-kraft-takeover-bid http://www.

Sign up to vote on this title
UsefulNot useful