2. THE BACKGROUND
In 2009, US food company Kraft Foods launched a hostile bid for Cadbury, the UK-listed
chocolate maker. As became clear almost exactly two years later in August 2011, Cadbury was
the final acquisition necessary to allow Kraft to be restructured and indeed split into two
companies by the end of 2012: a grocery business worth approximately $16bn; and a $32bn
global snacks business. Kraft needed Cadbury to provide scale for the snacks business,
especially in emerging markets such as India. The challenge for Kraft was how to buy Cadbury
when it was not for sale.
3. Kraft itself was the product of acquisitions that started in 1916 with the purchase
of a Canadian cheese company. By the time of the offer for Cadbury, it was the
world’s second-largest food conglomerate, with seven brands that each
generated annual revenues of more than $1bn. It was a part of Phillip Morris
till 2001.
Cadbury, founded by John Cadbury in 1824 in Birmingham, England, had also
grown through mergers and demergers. It too had recently embarked on a
strategy that was just beginning to show results. Ownership of the company
was 49 per cent from the US, despite its UK listing and headquarters. Only 5
per cent of its shares were owned by short-term traders at the time of the Kraft
bid.
4.
5. THE RATIONALE.
Be the leader.
Cost
optimization.
Improve
distributorship
channels.
Improve the
portfolio mix.
The Cadbury purchase was part of the long-term strategy of Irene Rosenfeld, CEO and
Kraft Chairman since March 2007, who developed a three-year turnaround plan
designed to drive the profitable growth of Kraft Foods. It was assumed that the purchase
of Cadbury would help Kraft products develop in new markets such as Brazil and India
because of Cadbury’s current strong presence in those markets.[
6. ”It is the logical next step in our
transformation toward a high-growth,
higher-margin company.”
~Irene Rosenfeld
CEO and Chairman(Kraft)
Kraft believed the Cadbury purchase was also necessary because of
the likelihood of Nestle and Hershey joining together. Kraft also
believed it could squeeze savings of at least $675m annually by the
end of the third year.
7. THE CHALLENGE.
Not only was Cadbury not for sale, but it actively resisted the Kraft
takeover.
Sir Roger Carr, the chairman of Cadbury, was
experienced in takeover defences and immediately put together a
strong defensive advisory team. The team made clear that even if
the company had to succumb to an unwanted takeover, almost any
other confectionery company (Nestlé, Ferrero and Hershey were all
mentioned) would be preferred as the buyer. In addition, Lord
Mandelson, then the UK’s business secretary, publicly declared
that the government would oppose any buyer who failed to
―respect‖ the historic confectioner.
Cadbury’s own defence documents stated that shareholders
should reject Kraft’s offer because the chocolate company would
be ―absorbed into Kraft’s low growth conglomerate business
8. It was not only the management
that was opposing the move but
also the other stakeholders
which included majorly the trade
union who feared a loss of jobs
along with the government of UK
who feared a loss of heritage.
They together launched the
“Keep Cadbury independent
campaign”.
To add to the problems Warren
Buffet, the biggest individual
shareholder in Kraft did not want
them to overprice the takeover and
opposed the all out attack on
Cadbury.
9. THE PROCEDURE
2009
• Aug 28- Initial bid at 755 pence per cadbury share.
• Sep 7- Kraft goes public with the bid. Cadbury promptly rejects the bid.
• Sep 12-Cadbury calls the bid unappealing due to the low growth
conglomerate business model of Kraft.
• Sep 16-Warren Buffet warns Kraft not to overpay Cadbury.
• Sep 21-Cadbury contacts the UK takeover panel to request a, ― put up or
shut up‖ request be sent to Kraft which would force them to give a
formal bid in a given time frame
• Sep 30- The UK Takeover panel rules that Kraft has until 1700 GMT on
nov 9 to put up a formal bid.
• Oct 21- Cadbury posts an upbeat quarter result ,indicates increase in
sales and profit margin above expectation. The street fails to react as a
counter bidder for Kraft seems unlikely.
• Oct 22- Nestle and Hershey’s also put up good quarter results but
neither speculates on a joint bid for cadbury.
• Nov 3- Kraft’s results disappoint posting less than expected revenue.
10. • Nov 9- Kraft formalises its bid at the same terms for cadbury as the
original approach - - 300p in cash and 0.2589 new Kraft share for each
cadbury share - - valued at 717p.
• Nov 18- Both Italy’s Ferrero and Hershey say separately that they are
reviewing a bid for cadbury but give no assurance.
• Nov 23- Cadbury’s share hit an all time high of 819p on speculation of a
bidding war between Kraft and competitors.
• Dec 4 – Kraft posts its offer document to cadbury shareholders starting
off a two months fight under the UK take over laws. Kraft says its bid is
now worth 713p a share or 10.1 billion pounds.
• Dec 14- Cadbury issues its official defence document promising bigger
dividends and stronger growth and reminding that Hershey and Ferrero
may bid
• Jan 5- Cadbury sweetens its bid with 60p more cash but reduces the
shares offered keeping the total bid unchanged.
• Jan 12- Cadbury gives its final official defence against Kraft bid
reporting robust trading and rejecting the bid on valuation. Ferrero pulls
out.
• Jan 14-Cadbury fires last bid as media reports say that Hershey is
mounting a solo bid but analysts doubt it as they don’t think it has the
finances.
• Jan 19- Cadbury accepts Kraft’s offer of GB 11.7 billion pounds ending
months of corporate battle valuing each cadbury share at 840p.
• Feb 05- Kraft acquires 75% of cadbury shares thus finalizing the deal.
• Mar 08- Cadbury shares are de-listed.
11.
12. THE AFTERMATH
Both Kraft and Cadbury have a lot at stake to make this deal work. Statistically, deals
this complex have a high rate of failure. In fact, research conducted by RHR
International found that 70% of acquisitions fail to deliver the expected results.
Despite the discouraging data, there is much the leadership teams at both Kraft and
Cadbury can do to put the odds in their favor.
The task at hand is immense and there are some of the immediate challenges:-
Perceived dominance
Cadbury executives might assume that Kraft will adopt a dominant
approach. Kraft will have to make their intentions with Cadbury clear
as soon as possible to avoid unnecessary speculation.
13.
14. There is a learning curve.
Kraft purchased Cadbury to break into emerging markets, and it will take Kraft some time to
learn the nuances of working in those markets.
15. iconic brands
Corporate and national pride behind both companies is strong. For
Cadbury, coming to terms with the fact that it may have to merge
some of its identity with Kraft could be especially difficult. (Let's
face it—Cadbury is nearly as important to British culture as the
Beatles.)
Tough decisions are inevitable.
Because Kraft borrowed heavily to buy Cadbury, it may be focused on
revenue in the short term. Some difficult decisions could be on the
horizon. Layoffs are on the cards as Kraft’s 98000 and Cadbury’s 70000
employees come together.
16.
17. 1) Kraft people values more multi-culturism, while Cadbury prefer the
more exclusive British heritage. It is aligned consistently with what
Kraft or Cadbury has done along the history.
2) Kraft is fine to destroy its competition by acquiring them; it would force
Kraft to accept many different cultures. In contrast, Cadbury was not
familiar with such approach to compete; therefore Cadbury was still
relatively unchanged.
3) In terms of social atmosphere, Cadbury is more family-feel than Kraft.
One another thing is flexibility to work in the company.
4) Kraft is far more bureaucratic than Cadbury.
Based on all elaboration so far, to be strict, separation model is the best
model to adopt for Kraft-Cadbury acculturation.
19. • To be successful, Kraft needs to have an open and honest dialogue with
Cadbury. This will give people a realistic understanding of what is going
to happen, allowing them to make informed decisions about future
prospects.
• As the acquirer, Kraft also has the responsibility to provide a detailed
road map for integration. This will ensure that everyone understands
the process for joining. the companies, which will free up the leadership
team to address hidden issues.
• Finally, Kraft will have to unite the two companies under one vision.
Communications programs that support the new vision must be
planned, initiated, and sustained, and employees that support the vision
should be rewarded.
20. THE CONCLUSIONS.
Kraft investors will have to wait a bit longer than the
time it takes to rip the foil off a Cadbury’s crème egg
to discover whether the high-profile takeover battle
was worth it.
