Kraft and Cadbury Merger / Acquisition Analysis
Kraft Foods is the 2nd largest beverage and Food Company based in United States of America and was formed on December 10, 1923. They started with manufacturing Ice cream and later expanded into a wide range of dairy products, enjoying presence in over 155 countries. Kraft is an independent corporation and is listed on the NYSE (New York Stock Exchange) with revenues of $40 billion (fiscal year 2009). Its planned strategy was to take over Cadbury which was one of its top competitors, so as to increase market share and to gain access to emerging economies. The aim was to up raise Kraft’s global presence and revenues.
Cadbury was the second largest Confectionary Corporation. Headquartered in the UK, it started off with manufacturing tea coffee and later on manufacturing chocolate. It was formed in 1924. At that time it was named as "Cadbury Brothers Limited" which was later renamed as Cadbury UK and was also listed on the UK Stock Exchange; now Cadbury is a fully owned subsidiary of Kraft. Its revenues in the year 2008 were £5.4 b with 46 percent from chocolate, 33 percent from gum, and 21percent from candy products. Cadbury was an attractive takeover project as it had a potential of higher and sound market experience across the globe.
Revenue US$40.4 Billion (FY 2009)
Operating income US$5.52 Billion (FY 2009)
Net income US$3.02 Billion (FY 2009)
Employees 98,000 (2008)
Revenue GB£5,384 million (2008)
Operating income GB£388 million (2008)
Net income GB£364 million (2008)
Employees 71,657 (2008)
Financially & strategically, a merger between the two multi-national companies having common target markets and products are a perfect venture. The combined company could aim for long-term revenue growth. Expected EPS to grow up to of 11%, and Kraft projects its long-term revenue to upsize by 4% and EPS would grow by 7- 9% on a standalone basis.
The initial offer to the Cadbury management was rejected after which Kraft foods offered an attractive deal for the share holders, which was cash cum stock offer, along with that it also Kraft foods offered a 10 pence dividend as bonus. After the rejections by the Cadbury Management Board, Kraft made its proposals directly to Cadbury shareholders; it made the deal more lucrative by reducing the offered shares and by offering more cash. In response to this Cadbury, in order to put pressure on Kraft moved the UK Take over panel. Later Cadbury financials showed increasing trend which increased the value of the company much more.
Cadbury was an attractive target and rightfully it had a very significant number of long-term investment offers, due to which Kraft had to negotiate instead of just throwing and finalizing an offer.
Irene Rosenfeld, Chairman and CEO of Kraft Foods commented on the offer;
"This recommended offer represents a compelling opportunity for Cadbury Shareholders, providing both immediate value certainty and upside potential l" (quoted in http://www.telegraph.co.uk)
Commenting on the Offer, Roger Carr, Chairman of Cadbury, said;
" 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, consumers and employees.” (quoted in http://www.telegraph.co.uk)
On February 2, 2010 Cadbury and Kraft, two giants in the snack industry concluded their merger decision after months-long negotiations.
Cadbury's management agreed to an improved offer that would value the British group at £11.5 billion or 840 pence/share. As per agreement, Cadbury shareholders will also get 10 pence for every single share through a special dividend, raising Kraft's offer to £11.9 billion. The deal would make Kraft, the world's 2nd-biggest food corporation, one of the biggest global manufacturers in confectionary and chocolates. This would give the US group brands like Dairy Milk and Crème Egg to go along with Kraft's Suchardand Cote d'Or among others.
http://www.kraftfoodscompany.com/home/index.aspx Web 15 Sep. 2012
House of Commons Business, Innovation and Skills Committee
http://www.publications.parliament.uk/pa/cm200910/cmselect/cmbis/234/234.pdf Web 15 Sep. 2012
Government Response to the Business, Innovation and Skills
www.official-documents.gov.uk/document/cm79/7915/7915.pdf Web 15 Sep. 2012
http://www.telegraph.co.uk Web 15 Sep. 2012