Introduction

Early beginnings

-  History of Cadbury vs. History of Kraft Foods

o  Culture (Europe vs. America)

o  Values

Why did this deal take place?

Advantages for Kraft

-  Expand portfolio in confectionery

business, more lucrative

-  Geographical expansion into emerging

markets with high growth potential

-  Tap into Cadbury’s distribution channel

effectiveness (“instant consumption”

channels)

- 

Advantages for Cadbury

-  Share premium offered by Kraft of 58%

Consequence of the deal announcement

-  Warren Buffett’s caution 

o  “Should not overpay for Cadbury”  dissatisfaction

o  Distrustful of potential synergies, preferring to look at historical cash flows

o  Irene R. believed that Buffett’s ignorance of potentially transformational synergies

was devaluing the deal

-  Trade unions’ dissatisfaction

o  Up to 7,000 jobs predicted to be lost

  Offer document laid out a significant cost savings target more likely to

lead to job losses than saved jobs

o  Bad track record of Kraft

  Acquired Terry’s but closed its York factories even though it promised to

maintain production

-  Heritage and nationalist lobby

o  Felicity Loudon, Cadbury family heiress, sold her GBP 48m house to fund a new

chocolate company.

  Indignant that an American “plastic cheese” company had bought her great-

grandfather’s company 

Consequences of the transaction

-  Warren Buffett reduced his holdings from 9.5% to 6%

o  Value investing vs. short-term investing

-  Shareholders unsure whether the premium paid was too high

-  Significant integration costs also contribution to a reduction in bottom-line figures by 24%

-  Somerdale factory closed down, workers and union upset

Was the acquisition successful?

No

o  Net profits fell 24% to $540m in the quarter, due to high integration costs

 

o 

Less than ideal rise in Cadbury’s sales 

Yes

o  2012 FY earnings jumped by 54%

o  Revenues from developing markets were up 16% to $15.9b, now constitutes 30% of

total revenue

Why was Kraft successful in acquiring Cadbury?

-  According to Mr. Carr, the sudden shift toward a deal was spurred by the increase over the

past week in the portion of the company's stock owned by hedge funds and other investors 

that recently piled in looking for a quick payoff. Fearing that those investors, who now held

about 30% of the shares, would sell for a price below what the board thought it was worth,

Mr. Carr took a 7 p.m. call from Ms. Rosenfeld at his home on Sunday night.

o  "The risk was that if they had gone to the market with a lower offer, there was a

chance that we would have lost with a lower number. We could not settle for an

inappropriate price."

-  UK government was not keen on providing protection from Kraft, an American company, for

Cadbury, an English company

o  Consistency with their “Open Market” policy 

-  Pushed Nestle out of the acquirer pool by reducing their cash pile through the sale of the

Pizza business. Nestle was number one foods company globally at the time.

-  No competitive counter-bids materialised from Hershey, Ferrero Rocher.

What changes could be made to the regulatory framework to better regulate hostile takeover bids?

-  Stricter enforcement of pre-transaction agreements (in reference to Kraft’s broken promise

to reverse Somerdale factory closure decision)

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