Merger of Kraft & Cadbury

About Cadbury• Cadbury is the second largest confectionary, UK based

company, started with manufacturing tea, coffee and later chocolate at Bull street in Birmingham and was formed by John Cadbury in 1824.

• The company was known as “Cadbury Brothers Limited”• In 1969 Cadbury Brothers merged with Schweppes to form the

international confectionary and beverages company “Cadbury Schweppes plc”.

• In 1989, the company purchased “Trebor Bassett” forming the UK confectionary subsidiary “Cadbury Trebor Bassett ”.

• Cadbury India began its operations in India in 1948 by importing chocolates.

•  It now has manufacturing facilities in Thane, Induri (Pune) and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and sales offices in New Delhi, Mumbai, Kolkata and Chennai.

• Since 1965 Cadbury has also pioneered the development of cocoa cultivation in India. For over two decades, Cadbury has worked with the Kerala Agricultural University to undertake cocoa research.

•  Currently, Cadbury India operates in four categories: chocolate confectionery, milk food drinks, beverage and candy & gum category.

Cadbury India

•  Its products include Cadbury Dairy Milk, Bournville, 5-Star, Perk, Gems, Eclairs, Bournvita, Celebrations, Bilkul  Bournville, Cadbury Dairy Milk Shots, Cadbury Dairy Milk Silk, Halls, Tang and Oreo.

• It is the market leader in the chocolate confectionery business with a market share of over 70%.

• The Brand Trust Report, India Study, 2011 published by Trust Research Advisory ranked Cadbury in the top 100 most trusted brands list. 

• Kraft foods is the second largest food and beverage corporation headquartered in US and was formed on December 10,1923 by Thomas H.McInnerney.

• Started with ice-cream manufacturing and later expanded into full range of dairy products. It is enjoying presence in more than 155 countries.

• Kraft is an independent public company; it is listed on the Nasdaq.

Kraft Foods

Financial • Kraft Revenue- US$ 40.4 billion (FY 2009) Operating Income- US$5.52 billion (FY 2009) Net Income- US$3.01 billion (FY 2009) Employees-98,000(2008)

• Cadbury Revenue-GB £5,384 million (2008) Operating Income-GB£ 388 million (2008) Net Income-GB £364 million (2008) Employees- 71,657 (2008)

Major Stakeholders

The major stakeholder in this acquisition deal are as follows:-• Cadbury’s Shareholder• M & A advisor• Stock market speculator• Senior Management of Cadbury• Senior Management of Kraft• Kraft’s Shareholder• European Union

About the takeover The following are the key events in Kraft's takeover battle for Cadbury:• AUG 28, 2009 - Irene Rosenfeld, Kraft's chairman and chief

executive, meets Cadbury's chairman Roger Carr to outline a takeover deal in cash and shares which valued Cadbury's shares at 755 pence each, but Carr dismissed the approach. The Kraft bid was worth 300p in cash and 0.2589 new Kraft shares for each Cadbury share. 

SEPT 7 - Kraft goes public with the bid, but by this time the value of the same offer had slipped to 745p per Cadbury share, or £10.2bn. Cadbury promptly rejects the bid. 

SEPT 12 - Cadbury's Carr in a letter to Rosenfeld again rejects the bid saying it was an "unappealing prospect" being absorbed into Kraft's "low growth conglomerate business".

SEPT 16 - Warren Buffett, the world's second richest man and a leading shareholder in Kraft with a 9.4pc stake, warned the US food group not to overpay for Cadbury. 

SEPT 21 - Cadbury contacts the UK Takeover Panel to request a "put up or shut up" request be sent to Kraft, which would give a time frame for Kraft to come up with a formal bid. 

SEPT 23 - Cadbury chief executive Todd Stitzer is reported at a Bank of America/Merrill Lynch conference as saying he saw some potential benefits from a Kraft deal and discussed valuations with investors, according to a note from the conference.

 

SEPT 25 - Cadbury's Stitzer says he does not believe Kraft's offer for his company made strategic or financial sense, while Cadbury said his previous remarks had been misconstrued to imply a softening of his views about a deal with Kraft. 

SEPT 30 - UK Takeover Panel rules that Kraft has until 5pm on Nov 9 to make a formal offer for Cadbury or walk away for six months. Cadbury reiterates its rejection of the Kraft bid.

OCT 21 - Cadbury posts upbeat third-quarter trading with underlying sales up 7pc as it raise its 2009 target for sales and profit margin growth. The shares fail to react as a counter bidder for Kraft is seen increasingly unlikely. 

NOV 3 - Kraft's third-quarter results disappoint investors with weaker-than-expected revenue and as it cut its 2009 sales forecast. Rosenfeld says she will not overpay for Cadbury. 

NOV 9 - Kraft formalizes 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 said separately they were reviewing a possible bid for Cadbury but gave no assurance that either would make an offer. 

NOV 23 - Cadbury shares hits all-time high of 819½p on speculation of a battle between Kraft and rivals for the British chocolate maker. 

DEC 4 - Kraft posts its offer document to Cadbury shareholders starting off a two-month fight for the British group under UK takeover rules. Kraft says its bid is now worth 713p a share or £10.1bn. 

DEC 14 - Cadbury issues its official defense document promising bigger dividends and strong growth as Cadbury reminds its shareholders that Hershey and Ferrero may bid.

• JAN 5, 2010 - Kraft sweetens bid with 60p more cash but cuts shares on offer to keep offer price unchanged.

• JAN 12 - Cadbury reports robust trading and rejects the bid on valuation. Ferrero pulls out.

• JAN 19 - Kraft seals a deal to buy Cadbury for £11.5bn• Feb 05-Kraft had secured over 75% of the shares thus

finalizing the deal.• Mar 08- Cadbury’s shares was de-listed

Agreements terms

• Cadbury shareholder offer:500 pence cash and 0.1874 new Kraft for each Cadbury share.

• For each Cadbury ADS, Shareholders will receive 2000 pence and 0.7496 new craft share.

• Offer equates to 840 pence per Cadbury share and 3360 per Cadbury share ADS and based on Kraft share price of $29.58 and an exchange rate of 1.63 dollars to the pound

• Cadbury shareholders will get 10 pence per share by way of a special dividend

• Offer values Cadbury at approximately 11.9 billion pounds

Agreements terms

• Offer represents a multiple of 13 times Cadbury underlying 2009 EBITDA

• Kraft to reduce the number of acceptances required from 90 percent to 50 percent plus one Cadbury share

• Final offer does not require the approval of Kraft shareholders

• Full acceptance will result in the issue of 265 million new Kraft share, representing 15 percent of its enlarged share capital

• Cadbury says considers offer fair and reasonable.

• Kraft • Cadbury

• The second largest food beverage company in the world

• Revenue in 2009 :40.4 billion USD operations in more than 150 countries

• Top 3 competitors Nestle,pepsico and general mills

• Number of employees :100000

• The second largest confectionary company in the world

• Revenue in 2009:8 billion USD

• Very strong in asia pacific and latin america

• Top 3 competitors:hersley mars and nestle

• Number of employees:70000

KRAFT STRATEGIESKRAFT FOODS OFFERED A CASH CUM STOCK DEAL TO MAKE IT

LUCRATIVE TO THE CHARE HOLDERS AND ALSO IT ANNOUNCED A 10 PENCE BONUS DIVIDEND TO SHAREHOLDERS TO LURE THEM TO ACCEPT THE DEAL.

AFTER INITIAL REJECTIONS BY THE CADBURY MANAGEMENT , KRAFT MADE ITS PROPOSAL DIRECTLY TO CADBURY’S SHAREHOLDERS.

KRAFT SOLD ITS PIZZA BRANDS INCLUDING DIGIORNO AND TOMBSTONE TO NESTLE AND USE THE PROCEEDS FROM THE 3.7 BILLION DEAL TO BOOST THE CASH COMPONENTOF ITS CADBURY BID.

IT GOT APPROVAL FROM THE EU ANTITRUST COMMITTEE BY DIVESTING ITS POLISH AND ROMANIAN CHOCOLATE BUSINESS. THIS WAS DONE TO MAINTAIN COMPETITION IN THE MARKET.

IT SWEETENED THE DEAL BY OFFERING MORE CASH AND REDUCING THE SHARES OFFERED. THIS WILL BE MORE USEFUL FOR THE SHARE HOLDERS GIVEN THAT HE SHARE PRICES OF THE KRAFT WOULD BE MORE VOLATILE DUE TO FRESH ISSUES OF THE CRAFT SHARES.

CADBURY’S DEFENSIVE STRATEGY

CADBURY MOVED THE UK TAKEOVER PANEL TO PRESSURIZE KRAFT.

CADBURY DISSCUSED A RIVAL OFFER WITH HERSHEY ( WHITE KNIGHT)

CADBURY WAS SUCCESSFUL IN BOOSTING THE THIRD QUARTER RESULTS WHICH MADE THE COMPANY MORE VALUABLE.( WINDOW DRESSING)

CADBURY HAD A VERY SIGNIFICANT PROPORTION OF THE LONG TERM INVESTORS INTERESTED AND INVOLVED IN THE STOCK AND WERE ABLE TO FORCE KRAFT TO COME TO UK AND TALK TO THE INVESTORS.THIS FORCED KRAFT TO NEGOTIATE INSTEAD OF JUST ROLLING OUT AN OFFER.

A BIG PART OF CADBURY’S DEFENCE STRATEGY RESTED ON LIMITING THE IMPACT OF HEDGE FUNDS IN DETERMINING THE DEAL , WHICH PROHIBITED KRAFT TO FURTHER LOWER THE DEAL VALUEBY THE USE OF HEDGE FUNDS.

• THE CEO AND THE BOARD WERE VOCAL ABOUT THE LACK OF STRATEGIC PURPOSE IN THE DEAL.

• CADBURY CONSTANTLY MONITERED ITS TOP 50 TO 75 INVESTORS WHOM KRAFT MIGHT APPROACH . IT WAS A TACTILE ENGAGMENT TO BUILD PEOPLE’S EXPECTATIONS OF WHAT VALUE CADBURY COULD DELIVER IN THE FACE OF KRAFT’S OFFER.

• CADBURY PUBLISHED DOCUMENTS IN DEFENSE AGAINST THE HOSTILE STRATEGY OF KRAFT ON JANUARY 12 2010.

PLANS AFTER TAKEOVER• KRAFT FOOD IS THE WORLD’S LARGEST CONFECTIONARY

COMPANY.• KRAFT BELIEVES THAT THE COMBINED COMPANY COULD

TARGET LONG TERM ORGANIC REVENUE GROWTH IN EXCESS OF 5% AND SUSTAINABLE LONG TERM EPS GROWTH OF 9% TO 11 % WHEREAS KRAFT TARGETS LONG TERM REVENUE GROWTH OF 4% AND AN EPS OF 7% T 9 % ON A STAND ALONE BASIS.

THE HIGHER LONGTERM REVENUE GROWTH RATES IN REVENUES AND BOTTOM LINES WILL BE DRIVEN BY REVENUE SYNERGIES AND $625MILLION IDENTIFIED ANNUAL COST SAVINGS.

CADBURY IS HIGHY COMPLIMENTARY TO KRAFT’S GEOGRAPHICALFOOTPRINT AND WILL INCREASE DEVELOPING MARKETS’ CONTRIBUTION TO KRAFT’S NET REVENUE FROM ABOUT 20% TO 25 %.

•

POST MERGER EVENTS• WORKFORCE MANAGEMENT AND TAX AVOIDANCE.• ENSURE KEY TALENT IS RETAINED DUE TO THE

WEAK RELATIONSHIPS AMONG THE MANAGEMENT AND THE STAKE HOLDERSWARNING SUCH AS WARRENBUFFET.

• DEBT LOADED ON KRAFT FOODS DUE TO THE MERGER MAKES WORKFORCE OPTIMIZATION IMMINENT.KRAFT FOODS ANNOUNCED IN DECEMBER 2010 TO MOVE CADBURY’S HEADQUARTERS AND TRANSFER THE CADBURY’S TO THE HOLDING COMPANYBASED IN SWITZERLAND IN AN ATTEMPT TO AVOID PAYING MILIONS OF POUNDS OF TAX TO THE UK GOVERNMENT.

• INDIAN AUTHORITIES ON JAN 8TH 2011 SEEKED CLARIFICATIONS REGARDING THE DEAL TO CHECK FOR TAX EVASION ALLEGATIONS.

KRAFT AND CADBURY TODAY• 13% RISE IN THE INCOME YOY SUGGESTS THE

SYNERGY OF THE DEAL IN ACTION AND INTEGRATION PLAN.

• 90% OF THE RISE IN INCOME CONTRIBUTED BY CADBURY DIVISION. RIGHT JUDGEMENT OF KRAFT FOR GEOGRAPHICAL DIVERSIFICATION OF POOR AMERICAN MARKET.

• 34.1% BOOST IN EUROPEAN REVENUES- NEW MARKET ENTRY FOR PRODUCT PORTFOLIOS.

• ENTRY OF KRAFT PRODUCTIONS INTO INDIA AND LATIN AMERICA THROUGH CADBURY CHANNELS WITH JOINT CUSTOM PRODUCT DEVELOPMENT.

CONSEQUENCES OF THE MERGER• KRAFT HAS BECOME THE ULTIMATE

CANDY MAKER ON EARTH.• A NEW BRITISH ICON IN DANGER.• 30,000 JOBS AT RISK.• BUSINESS FUNCTIONS AND OPERATIONS

CAN GO OUT OF ENGLAND.• COLLISION BETWEEN TWO CULTURES.• ONLY 1/3 RD OF THE CADBURY

MANAGEMENT ON THE BOARD OF KRAFT FOODS.

• IDENTITY CRISIS.

CONSEQUENCES OF THE MERGER

• GORDOWN ANNOUNCED A POLICY ON ECONOMIC PROTECTIONISM IN CASES OFTAKE OVER OF LARGE COMPANIES.

• THE TRADE UNION LAUNCHED A PETITION ON A SEPARATE SITE WELOVECADBURY.COM .

CONSEQUENCES IN INDIA AFTER THE MERGER

• A few months after Kraft acquired Cadbury in a $18.9-billion hostile takeover, Sanjay Khosla, the head of Kraft's operations in developing markets, called the merger a marriage made in heaven. Not everyone at the Indian company will agree — certainly not the 20-odd senior executives across functions such as supply chain, sales, legal and finance who have resigned since the integration began.

CONSEQUENCES OF THE MERGER

• The Economic Times cites a source stating that nearly all of the senior employees left citing a clash of cultures and "an inability to deal with Kraft's heavy hand on the operations".

• Before the takeover, it notes that Cadbury was "nimble-footed, taking pricing and promotional decisions on the ground without having to wait for official approvals from the top brass". And whereas approvals for marketing and advertising budgets at Cadbury would be cleared swiftly within a few days pre-takeover, now they come after a month although Kraft says that there had been no integration issues.

• SHUBH ARAMBH , KUCH MEETHA HO JAYE. LEFT A BITTER TASTE.