CADBURY-KRAFT MERGER AND ACQUISITION

Introduction to Mergers and Acquisitions

Merger and Acquisition is a general term used to refer to the consolidation of companies. A merger is consolidation of two companies to form a new company while an acquisition is the purchase of one company by another one in which no new company formed. Four periods of economic history have witnessed very high levels of mergers activity, which are called merger waves. These periods were characterized by cyclical activity i.e., larger number of merger followed by relatively fewer mergers. The current period i.e. since 1992 to till the date is called fifth wave. In the first three waves, mergers activity was concentrated in the United States of America. The fourth and fifth waves were global in nature though the impact of the wave is most pronounced in USA

The similarity between merger and acquisition is that both of them are combination of two companies. But the basic difference is merger is financial tool to enhancing long term profitability by expanding their operations. Merger results in a new company name and new branding. Acquisition is done

for purely for politically or marketing reasons. Acquisition is also known as takeover, it may be of two types – hostile or friendly.

Origin of Cadbury

Cadbury is the brain child of John Cadbury. Starting in form of grocery business in Birmingham in 1824.In 1853, Cadbury became the confectioner to

the British Crown.In 1860, Richard and George took command and expand it further.Today Cadbury operate Globally

History

Early history

In 1824, John Cadbury began selling tea, coffee, and drinking chocolate, which he produced himself, at Bull Street in Birmingham, England. John Cadbury later moved into the production of a variety of Cocoas and Drinking Chocolates being manufactured from a factory

In Bridge Street, supplying mainly to the wealthy due to the high cost of manufacture at this time. During this time a partnership was struck between John Cadbury and his brother Benjamin. At this time the company was known as 'Cadbury Brothers of Birmingham'.

The two brothers opened an office in London and in 1854 received the Royal Warrant as manufacturers of chocolate and cocoa to Queen Victoria. Around this time in the 1850s the industry received a much needed boost with the reduction in high import taxes on cocoa; this allowed chocolate to become more affordable to everyone.

Due to the popularity of a new expanded product line, including the very popular Cadbury's Cocoa Essence, the company's success led to the decision in 1873 to cease the trading of tea. Around this time, master confectioner Frederic Kinchelman was appointed to share his recipe and production secrets with Cadbury, which led to an assortment of various chocolate covered items.

Having taken over the business in 1861, John Cadbury's sons Richard and George decided in 1878 that they needed to find new premises. Requiring better transport access for milk that was inward shipped by canal, and cocoa that was brought in by rail from London, Southampton and Liverpool docks, the Cadburys started looking for a new Greenfield site. Noticing the development of the Birmingham West Suburban Railway south along the path of the Worcester and Birmingham Canal, in 1878 they acquired the

Bournbrook estate, comprising 14.5 acres (5.9 ha) of countryside 5 miles (8.0 km) south of the outskirts of Birmingham. Located right next to the new Stirchley Road railway station, itself directly opposite the canal, they renamed the Bournbrook estate to Bournville and opened the Bournville factory in 1879.

In 1893, George Cadbury bought 120 acres (49 ha) of land close to the works and planned, at his own expense, a model village which would 'alleviate the evils of modern more cramped living conditions'. By 1900 the estate included 313 cottages and houses set on 330 acres (130 ha) of land. As the Cadbury family were Quakers there were no pubs in the estate in fact, it was their Quaker beliefs that first led them to sell tea, coffee and cocoa as alternatives to alcohol.

The old Kraft logo; still used today on Kraft branded products

Origin of the Kraft

The firm today known as Kraft Foods was formed on December 10, 1923 by Thomas H. McInnerney. The firm was initially set up to execute on a rollup strategy in the then fragmented United States ice cream industry. Through acquisitions it expanded into a full range of dairy products. By 1930, eight years after it was founded, it was the largest dairy company in the

United States and the world, exceeding Borden.

HISORY

EARLY HISTORY

Canadian-born and of German origin, James L. Kraft started a wholesale door-to-door cheese business in Chicago in 1903; its first year of operations was "dismal", losing US$3,000 and a horse. However, the business took hold and Kraft was joined by his four brothers to form J.L. Kraft and Bros. Company in 1909. As early as 1911, circulars and advertisements were in use by the company.

In 1912, the company established its New York City, New York, headquarters to prepare for its international expansion. By 1914, thirty-one varieties of cheeses were being sold around the U.S. because of heavy product development, expansion by marketing, and opening a wholly owned cheese factory in Illinois.

In 1915, the company had invented pasteurized processed cheese that did not need refrigeration, thus giving a longer shelf life than conventional cheese. The process was patented in 1916 and about six million pounds of the product were sold to the U.S. Army for military rations during World War I.

In 1916, the company began national advertising and had made its first acquisition — a Canadian cheese company.

In 1924, the company changed its name to Kraft Cheese Company and listed on the Chicago Stock Exchange. In 1926, it was listed on the NYSE. The firm then began to consolidate the United States dairy industry through acquisition, in competition with National and Borden.

Later, in 1927, it established its London, United Kingdom, and Hamburg, Germany, sales offices — its first forays outside North America. Sales for 1927 were $60.4m.

In 1928, it acquired Phenix Cheese Company, the maker of a cream cheese branded as Philadelphia cream cheese, and the company changed its name to Kraft-Phenix Cheese Company.

In 1929, The New York Times reported that Kraft Phenix, The Hershey Company and Colgate were looking at merging. In the same year, it was reported that National, Borden and Standard Brands (a firm that is now part of Kraft Foods) were all looking at acquiring the firm.

By 1930, it had captured forty percent of the cheese market in the U.S. and was the third largest dairy company in the United States after National Dairy and Borden. In 1930, the company also began operating in Australia following a merger with Fred Walker & Co.

CADBURY-KRAFT MERGER

Cadbury,which had become a part of the English heritage has now been taken over by the US giant Kraft.Cadbury was sold to Kraft after numerous speculations and allegations by the british public.The public labour union along with the MP’s of the state teamed up to prevent Cadbury from selling their 180 year old legacy, but all went in vain. Their main opposing point against the multi billion deal was the fact that Kraft was known to have a poor track record when it came to international takeover which usually resulted in layoff of the company employees.

Kraft made an offer of ₤10.2 billion to the largest confectionary giant in the UK, but was turned down stating that the company was majorly undervalued. The main motive behind the takeover by Kraft was to become the largest confectionary company in the world which would result in a turnover of around ₤50 billion per year. When the management turned down the offer, Kraft sent across a petition to the shareholders of Cadbury offering them a cash and shares deal of 300 pence along with a 0.2586 share for every Cadbury share they sell. This valued the share at 748 pence against the previous 568 pence with a first hand profit of 30%. Soon after this move, Cadbury asked the UK panel to give a deadline to the US company to either make a final deal soon, or close the deal for the next 6 months. Hence, by the

9th November, a very hostile Kraft lowered its offer to ₤9.8 billion and did not imply any modifications to its previous deal. Which was again rejected by Roger Karr, the chairman of the company stating that the deal was ‘a low-growth conglomerate model’. However, this news backfired and led to a drop in 2% in the share market.

The speculations surrounding the news that that Hershey and Italian Ferrero might have a joint bid again led to a major increase in the share value. World’s largest food corporation, Nestle, also showed interest in a takeover but later dropped the idea.

Kraft retaliated by sending out pamphlets to the shareholders stating the risks involved in supporting a standalone company. The extra revenues required for this campaign were generated due to Kraft selling off their frozen pizza business to Nestle for $3.8 billion. Cadbury also had extensive talks with Hershey’s to go against Kraft and as they had acquired the license to manufacture some of Cadbury’s products. This also was of no help to the company and they finally had to close the deal at ₤11.9 billion.

Kraft had taken a loan of around $7 billion to which the people in Britain fear that there would be major cut offs in the job segment as the case was the shut down of the Cadbury factory in Bristol which led to a loss of 400 jobs.

Ignoring all these facts and figures, today, more than anything else, the people all over Europe grieve over the loss of a products which defined the English history and their ancestors.

The acquisition of Cadbury by Kraft foods Incorporation is now making the Indian market strong and opening doors for India to invite foreign companies for investment in India. As now Cadbury is the second largest confectionery company after Mars-Wrigley and Kraft is the second largest food giant after Nestle. Now one of the world largest food companies has finally bitten into sweet chocolate with its bid of $19.7 billon for Cadbury and making historical merger in the fifth wave of merger waves. After months of fierce resistance, Cadbury ‘s about-face to accept a sweetened 11.5 billion pound ($19.7 billion) takeover from Kraft Foods Incorporation – forming worlds biggest food and dairy product company defeating to Nestle. The said deal surprised the world as one moment the company boasted of their shares reaching a worth of 10 pound each in few years and days later it accepted an offer from Kraft at 8.50 pounds per share.

Seven years since exit from India Kraft foods acquisition of Cadbury is expected to enable the US foods major to return to Indian market. With a turnover of Rs.2000 Cr. Cadbury India is said to be growing at Compounded Annual Growth Rate (CAGR) of 20%, while its bottom line is said to be riding on 30% growth rate annually and due to this Kraft will also make good market in India for their products.

Cadbury has remained the undisputed market leader in the Rs.2000 Cr. Chocolate confectionary category with a share of around 72% but at the other end Nestle is giant in beverages and convenience foods as compared to chocolates.

After deal effect

After such deal its analyzed that after month of fierce resistance, Cadbury’s about face to accept a sweetened 11.5 billion pound ($ 19.7 Billion) takeover from Kraft Foods Incorporation – forming the world’s biggest food and candy company as well as alarmed British Unions, Lawmakers and chocolate lovers.

The said deal was settled in 500 pence cash and 0.1874 new Kraft shares for each Cadbury Share, is a 9 percent premium to its previous offer i.e. 770 pence in cash and 50 percent higher than Cadbury’s market value before Kraft. On the day when Cadbury accept the offer of Kraft, Cadbury’s stock was trading just under that level, at 835 pence, up 3.6 percent as well as the share of Kraft Toblerone Chocolate, Velveeta Processed cheese and Oreo Cookies were down 2.5% at $28.

The combination of these two companies will make world’s largest confectionary company replacing Mars Incorporation. As per commented by Irene Rosenfield CEO at Kraft Incorporation the deal provides “both immediate value certainty and upside potentials” as she tried to mollify concerns about the loss of Cadbury’s Iconic Status.

But unions are worried that there were no clear guarantees from Kraft that it won’t switch manufacturing of some of the 186-year-old company’s chocolates to Eastern Europe, sacrificing thousands of British brands.

After deal effects:

As deal is between two second largest companies now the new company will overtake Mars Incorporation as well as so many foreign companies were come to India for investment and also for making good marketing chains in India as the Cadbury is having now.

As the new company is formed revenues will also be increased. As per the new brand name company’s estimated revenue will be around $90 to $100 billion each.

As the earlier said that both the companies are second largest in their respective market now combination this two will take lead position in Brazil, Russia, India, China and Mexico.

We all know that all the Mergers and Acquisition are not 100% satisfactory and 100% good in nature. Now due to this Acquisition of Cadbury by Kraft it is said that this will cut the jobs of around 25000-30000 employees mainly of Cadbury Employees as well as there is so many share holders of Cadbury are not satisfied with the deal as said by the the worlds well known investor Mr. Warren Buffet that if he get the chance for voting for deal then he will give “no”.

Now after the deal Kraft, McDonald’s and Coca-cola are the only three companies under beverages category in the Dow 30 list.

Merger with Schweppes

The Cadbury Schweppes logo used until the demerger in 2008

Cadbury merged with drinks company Schweppes to form Cadbury Schweppes in 1969.

Cadbury Schweppes went on to acquire Sunkist, Canada Dry, Typhoo Tea and more. In the US, Schweppes Beverages was created and the manufacture of Cadbury confectionery brands were licensed to Hershey's.

Snapple, Mistic and Stewart's (formerly Cable Car Beverage) were sold by Triarc to Cadbury Schweppes in 2000 for $1.45 billion.http://en.wikipedia.org/wiki/Cadbury - cite_note-nyt-10 In October of that same year, Cadbury Schweppes purchased Royal Crown from Triarc.

Demerger

In March 2007, 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; the other on its US drinks business. The demerger took effect on 2 May 2008, with the drinks business becoming Dr. Pepper Snapple Group Inc.[ In December 2008 it was announced that Cadbury was to sell its Australian beverage unit to Asahi Breweries.

Recent developments

In October 2007, Cadbury announced the closure of the Somerdale Factory, Keynsham, formerly part of Fry's. Between 500 and 700 jobs were affected by this change. Production transferred to other plants in England and Poland.

In 2008 Monkhill Confectionery, the Own Label trading division of Cadbury Trebor Bassett was sold to Tangerine Confectionery for £58million cash. This sale included factories at Pontefract, Cleckheaton and York and a distribution centre near Chesterfield, and the transfer of around 800 employees.

In mid-2009 Cadbury replaced some of the cocoa butter in their non-UK chocolate products with palm oil. Despite stating this was a response to consumer demand to improve taste and texture, there was no "new improved recipe" claim placed on New Zealand labels. Consumer backlash was significant from environmentalists and chocolate lovers. By August 2009, the company announced that it was reverting to the use of cocoa butter in New Zealand. In addition, they would source cocoa beans through Fair Trade channels. In January 2010 prospective buyer Kraft pledged to honour Cadbury's commitment.

Kraft Foods takeover

On 7 September 2009 Kraft Foods made a £10.2 billion (US$16.2 billion) indicative takeover bid for Cadbury. The offer was rejected, with Cadbury stating that it undervalued the company.Kraft launched a formal, hostile bid for Cadbury valuing the firm at £9.8 billion on 9 November 2009. Business Secretary Peter Mandelson warned Kraft not to try to "make a quick buck" from the acquisition of Cadbury. On 19 January 2010, it was announced that

Cadbury and Kraft Foods had reached a deal and that Kraft would purchase Cadbury for £8.40 per share, valuing Cadbury at £11.5bn (US$18.9bn). Kraft, which issued a statement stating that the deal will create a "global confectionery leader", had to borrow £7 billion (US$11.5bn) in order to finance the takeover.

The Hershey Company, based in Pennsylvania, manufactures and distributes Cadbury-branded chocolate (but not its other confectionery) in the United States and has been reported to share Cadbury's "ethos". Hershey had expressed an interest in buying Cadbury because it would broaden its access to faster-growing international markets. But on 22 January 2010, Hershey announced that it would not counter Kraft's final offer.

The acquisition of Cadbury faced widespread disapproval from the British public, as well as groups and organisations including trade union Unite, who fought against the acquisition of the company which, according to Prime Minister Gordon Brown, was very important to the British economy. Unite estimated that a takeover by Kraft could put 30,000 jobs "at risk", and UK shareholders protested over the Mergers and Acquisitions advisory fees charged by banks. Cadbury's M&A advisers were UBS, Goldman Sachs and Morgan Stanley. Controversially, RBS, a bank 84% owned by the United Kingdom Government, funded the Kraft takeover.

On 2 February 2010, Kraft secured over 71% of Cadbury's shares thus finalising the deal. Kraft had needed to reach 75% of the shares in order to be able to delist Cadbury from the stock market and fully integrate it as part of Kraft. This was achieved on 5 February 2010, and the company announced that Cadbury shares would be de-listed on 8 March 2010.

On 3 February 2010, the Chairman Roger Carr, chief executive Todd Stitzer and chief financial officer Andrew Bonfield all announced their resignations. Stitzer had worked at the company for 27 years.

On 9 February 2010, Kraft announced that they were planning to close the Somerdale Factory, Keynsham, with the loss of 400 jobs. The management explained that existing plans to move production to Poland were too advanced

to be realistically reversed, though assurances had been given regarding sustaining the plant. Staff at Keynsham criticised this move, suggesting that they felt betrayed and as if they have been "sacked twice". On 22 April 2010, Phil Rumbol, the man behind the famous Gorilla advertisement, announced his plans to leave the Cadbury company in July following Kraft's takeover.

Operations

United Kingdom

Main article: Cadbury UK

Cadbury plc also owns Trebor Bassett, Fry's, Maynards and Halls. The confectionery business in the UK is called Cadbury UK (formerly Cadbury Trebor Bassett) and, as of August 2004, had eight factories and 3,000 staff in the UK. Biscuits bearing the Cadbury brand, such as Cadbury Fingers, are produced under licence by Burton's Foods. Ice cream based on Cadbury products, like 99 Flake, is made under licence by Frederick's Dairies. Cadbury cakes and chocolate spread are manufactured under licence by Premier Foods, but the cakes were originally part of Cadbury Foods Ltd with factories at Blackpole in Worcester and Moreton on the Wirral with distribution depots throughout the UK.

Ireland

Main article: Cadbury Ireland

Cadbury Ireland Limited is a confectionery company in Ireland based in Coolock in Dublin. Cadbury's opened their first Irish factory in Ossary RD., Dublin in 1933. More than €250 million worth of Cadbury chocolate is produced in Ireland, is exported every year, bringing Ireland valuable earnings from abroad.

United States

Main article: Cadbury Adams

Cadbury plc's presence in the States consists of the confectionery unit Cadbury Adams, manufacturers of gum and mints but not chocolate. Cadbury merged with Peter Paul in 1978. Ten years later Hershey's acquired the chocolate business from Cadbury's. Accordingly, although the Cadbury group's chocolate products have been sold in the US since 1988 under the Cadbury name, the chocolate itself has been manufactured by Hershey's and can be found in Hershey's chocolate stores. Prior to the May 2008 demerger, the North American business also contained beverage unit Cadbury Schweppes Americas Beverages. In 1982, Cadbury Schweppes purchased the Duffy-Mott Company.

Australia and New Zealand

On 27 February 2009 the confectionery and beverages businesses of Cadbury Schweppes Pty Ltd in Australia were formally separated and the beverages business began operating as Schweppes Australia Pty Ltd. In April 2009, Schweppes Australia was acquired by Asahi Breweries. Cadbury also operate three Australian confectionery factories as well as one in New Zealand; two in Melbourne, Victoria (Ringwood and Scoresby), one in Hobart, Tasmania (Claremont), and one in Dunedin, New Zealand. The Claremont factory was once a popular tourist attraction and operated daily tours; however, the factory ceased running full tours mid-2008, citing health and safety reasons. Cadbury has been upgrading its manufacturing facility at Claremont, Tasmania, Australia, since 2001.

India

Main article: Cadbury India

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. The corporate head office is in Mumbai. 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.

Products

Main article: List of Cadbury products.

Cadbury plc manufactures chocolates and sweets such as the popular Cadbury Dairy Milk.

Notable product introductions include:

1865: Cocoa Essence 1875: Easter Eggs

1897: Milk Chocolate

1897: Cadbury Fingers

1905: Dairy Milk

1908: Bournville Chocolate

1915: Milk Tray

1920: Flake

1923: Creme Egg

1929: Crunchie

1938: Roses

1948: Fudge

1960: Dairy Milk Buttons

1968: Picnic

1970: Curly Wurly

1974: Snack

1983: Wispa (relaunched 2007)

1985: Boost

1987: Twirl

1992: Time Out

1996: Fuse

2001: Brunch Bar, Dream and Snowflake

2010: Cadbury dairy milk silk (richer, finer milk chocolate), Wispa Gold (originally launched 1995, relaunched for trial period 2009 and made permanent in 2010) and Dairy Milk Bliss.

Advertising controvery

In May 2011 the model Naomi Campbell described the new advertisement for the Bliss bar as 'insulting and hurtful'. Reacting to the advertisement, which haD the tag line "Move over Naomi – there is a new diva in town", Campbell said, "I am shocked. It's upsetting to be described as chocolate, not just for me, but for all black women and black people. I do not find any humour in this." A spokesperson for the company insisted that the campaign was "a light-

hearted take on the social pretensions of Cadbury Dairy Milk Bliss". The campaign was, he later added, "no longer in circulation... we have no plans to repeat the campaign." Reacting to Campbell's outburst, comediam Reginald D. Hunter, on the BBC television comedy quiz Have I Got News For You, suggested that it was complimentary for black people to be compared to chocolate, and that enjoyment of the Bliss bar might even be enhancen by a love of black people.

Health and safety

2006 Salmonella scare

On 19 January 2006, Cadbury Schweppes detected a rare strain of the Salmonella bacteria, affecting seven of its products, said to have been caused by a leaking pipe. The leak occurred at its Marlbrook plant, in Herefordshire, which produces chocolate crumb mixture; the mixture is then transported to factories at Bournville and formerly Somerdale to be turned into milk chocolate. Cadbury Schweppes officially notified the Food Standards Agency, shortly after which it recalled more than a million chocolate bars. In December 2006, the company announced that the cost of dealing with the contamination would reach £30 million. In April 2007, Birmingham City Council announced that it would be prosecuting Cadbury Schweppes in relation to three alleged offences of breaching health and safety legislation. An investigation being carried out at that time by Herefordshire Council led to a further six charges being brought. The company pleaded guilty to all nine charges, and was fined 1 million pounds at Birmingham Crown Court—the sentencing of both cases was brought together. Analysts have said the fine is not material to the group, with mitigating factors limiting the fine being that the company quickly admitted its guilt and said it had been mistaken that the infection did not pose a threat to health.

2007 recalls

On 10 February 2007, Cadbury announced they would be recalling a range of products due to a labelling error. The products were produced in a factory

handling nuts, potential allergens, but this was not made clear on the packaging. As a precaution, all items were recalled.

On 14 September 2007, Cadbury Schweppes investigated a manufacturing error over allergy warning, recalling for the second time in two years thousands of chocolate bars. A Printing mistake at Somerdale Factory resulted in the omission of tree nut allergy labels from 250 g Dairy Milk Double Chocolate bars.

2008

On 29 September 2008 Cadbury withdrew all of its 11 chocolate products made in its three Beijing factories, on suspicion of contamination with melamine. The recall affected the mainland China markets, Taiwan, Hong Kong and Australia. Products recalled included Dark Chocolate, a number of products in the 'Dairy Milk' range and Chocolate Éclairs.

Kraft-Cadbury: Making Acquisitions Work

Most acquisitions don't deliver the expected results, according to HR Intl's research. Here's how both companies' leadership can boost the chances for success

After months of negotiations, Kraft (KFT) announced last month that it would acquire U.K. confection giant Cadbury (CBY) with a revised bid of $19.5 billion. The acquisition of Cadbury by Kraft will generate a joint portfolio of more than 40 confectionary brands, each with annual sales in excess of $100 million, essentially creating the world's biggest confectionary company.

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.

Here is a look at the immediate challenges and what leadership at each company can do to mitigate them.

• The negotiation process was hostile.

Cadbury declined Kraft's initial offer. Compounding the issue was that the dialogue (which was hostile at times) between the two companies played out in the news for months prior to inking the final deal. Fence-mending will need to take place before any real integration can begin.

• They are iconic brands that have long pursued different positioning.

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.) Although this issue is largely a marketing/positioning question, it will have impact on the reaction of both organizations to the acquisition.

• 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.

• 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.

• 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.

Making the Deal Work

Putting the challenges aside, the first 100 days after a deal is announced can determine the success or failure of the acquisition. In this situation, one of the best strategies to bring the two teams together is to identify common goals. Experience shows that the more quickly individuals from both companies get to work together on common projects with common goals, the better the integration will work.

At the same time, management must make quick, yet considerate, decisions on divisive issues. There has already been speculation around pending layoffs at both Kraft and Cadbury, which diminishes productivity at all levels. Management will need time to determine the best blend of talent, but it is a top priority and must be executed swiftly so that people can move on as soon as possible.

At first glance, Kraft and Cadbury appear to be very different companies. But the reality is that they have much in common; after all, they are both consumer-product companies that specialize in confection and packaged foods. The leadership team can capitalize on this by having talent from both organizations work jointly on projects. This will encourage employees to focus on their similarities, rather than their differences.

Finally, employees at Kraft and Cadbury most likely have preconceived notions about the other based on what they have read in the news or heard through industry chatter. It is essential that the leadership team takes the time to discuss the differences in culture sooner rather than later, so that they can focus on similarities. Our experience shows that these differences begin to pale very quickly if they can be addressed early on.

Challenge to Kraft's Leadership

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. Building trust is the only way to prevent the defection of talented people. Kraft will face an immediate disadvantage if Cadbury's top talent leaves because no one knows the details of making a company successful better than those who had a role in its success.

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. The plan should provide guidance on the effectiveness of executives and managers, the performance of work units and processes, and the management of organizational change.

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. Executives and work units must be redeployed where they will be the most efficient. Departments will have to be restructured and processes redesigned in order to align with the new company. A system should be put in place for development of team effectiveness, so that teams are cohesive. Conflict-resolution methods must be developed to ensure quick and effective solutions, while workforce standards are sharpened and common business practices established. Adjustments to the culture should be made when necessary.

Challenge to Cadbury's Leadership

Integrating after a merger or acquisition is challenging for any organization, even under the best of circumstances. But after the deal is done, it's critical for leadership of the acquired company to publicly embrace the acquisition and show enthusiasm about the future. By focusing on the benefits of the acquisition, Cadbury executives will be better equipped to communicate the value that Kraft brings to the brand.

Senior executives at Cadbury will need to take symbolic steps to demonstrate their openness to the merger. This might be in the form of meetings, handshakes, companywide memos, public speeches, and even positive quotes about the acquisition in the media.

Ultimately, Cadbury should be proud of its accomplishments over the years. Companies become acquisition targets because they have a reached a high level of success. Executives can retain that pride while still keeping other emotions in check. One thing is for certain: There is no room for egos during the integration process.

While there are many challenges to overcome on both sides of the Kraft-Cadbury deal, strong leadership can help to smooth the process. Executives from both Kraft and Cadbury must remember that if the integration is successful, it will be a boon to both the companies, and to consumers

Kraft made a $16,3 billion bid for Cadbury today which was rejected on the basis of the offer not being high enough. Kraft will not be adjusting their pitch on the basis that their offer was not only fair but would benefit Cadbury's earnings in the long run as well as their own. Cadbury has already rejected an offer made by Kraft back in September and rebuked the US food company once again today.

Cadbury will resist the merger until Kraft increases its offer to at least £8 per Cadbury share. Cadbury's concerns are namely the fear of becoming absorbed by a business conglomerate that will envelope its identity and success. Kraft,

on the other hand, believes that a merger would allow both companies to expand their markets into other countries.

Kraft, which makes of Ritz crackers and Oreo cookies, offered £3, or $4.90, in cash and 0.2589 new Kraft shares for every Cadbury share. The offer values each Cadbury share at £7.17, a 26 percent premium to the price before Kraft made its original proposal.

Why Kraft Remains DelectableAs a standalone company, meaning without Cadbury, Kraft was and is a big force. After all, it has an excellent name, excellent shelf space in retail chains and many of its products such as Oreos and Mac & Cheese are a must have in many households, particularly in North America.

But the addition of Cadbury does have the potential to be a sizable positive for the company and its present shareholders. The reason: Cadbury is a major player in candy and gum and its addition to the Kraft arsenal will allow the combined company to have an even a broader reach around the world.

Also, when two companies of this size embrace there is a big chance to generate cost savings. Expect to hear more about that in the short term. In the release, the company indicated that the deal could add about a nickel to earnings in 2011.

Another attractive feature is that from an earnings standpoint, in all three of the last reported quarters the company has exceeded Wall Street's expectations. This too is a positive and could draw additional attention to the shares. In its fourth quarter Kraft is expected to earn 44 cents per share, and there could be upside to that number. Management will likely be doing everything it can to make sure that positive news keeps coming, knowing that its under the spotlight due to the combination

The Activist AngleIt was recently reported that Pershing Square Capital

Management accumulated a 2% stake in the company. The fact that the activist firm is involved in Kraft's stock means investors can expect William Ackman to keep an eye on management and make sure that it has the common shareholder's best interest in mind.

You may remember that Ackman and Pershing Square were involved in a number of other high profile stocks including Wendy's (NYSE:WEN), McDonald's (NYSE:MCD) and Target (NYSE:TGT), where Ackman had pushed the discounter to unload its credit card portfolio.

The Bottom LineWhile it's great that Kraft and Cadbury are getting hitched, Kraft was a good value even without the pickup. Its recent earnings beats and the fact that it trades at only 13.1 times the 2010 estimate are very attractive features. This is ultimately a $40 stock.

Kraft swallows Cadbury in $21b takeover

British chocolate bar maker Cadbury melted into the arms of US giant Kraft on Tuesday in a multi-billion-dollar deal to create a world leader in food and confectionery that sparked fears of job losses.Cadbury management has agreed to an improved takeover offer worth 840 pence per share, the companies announced in a statement, valuing the British group at about STG11.9 billion ($21 billion).The friendly takeover marks the end of a prolonged and bitter battle for control of Cadbury, which is steeped in history and nostalgia - and whose products are loved by millions of sweet-toothed customers worldwide.Cadbury, which began life as a small grocer's shop in Birmingham, central England in 1824, spans 60 countries with 45,000 staff helping to make and sell top-selling brands Dairy Milk bars, Cadbury Creme Eggs and Roses chocolates.Cadbury, led by chief executive Todd Stitzer - an American - had repeatedly rejected Kraft, arguing that its previous cash-and-shares offer was ''derisory'' and had undervalued the London-listed firm.But

Kraft emerged victorious on Tuesday, despite opposition from senior government ministers and trade unions over a move by a huge US firm to take over a British company deemed a monument to the chocolate bar.Australian impactThe merger would create a local foods giant with sales of more than $1 billion and bring the chocolate brand under the same roof as Kraft's Vegemite, cheese and biscuit brands.Kraft's revenue from its Australian operations was nearly $620 million in 2008, while Cadbury's revenue was $985 million in the same period, yielding combined sales of more than $1.6 billion.However, Cadbury has since sold its Schweppes drinks brand - which made up about a third of annual revenue - to the Japanese company Kirin.Cadbury has about 35 per cent of the local confectionary market and employs 2300 people in Australia, among 45,000 employees worldwide, and runs three factories.Local factory workers are unlikely to be affected by the merger, the chief executive of the Food and Grocery Council, Kate Carnell, has said previously.Minimal market overlap by the two means the deal will not face any trouble from Australia's competition regulator.Last month the Australian Competition and Consumer Commission said the proposed acquisition was unlikely to result in a substantial lessening of competition.''The merged firm would continue to be constrained by other significant suppliers of chocolate confectionery in Australia''.'Good value'''We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage, values and people throughout the world,'' said Cadbury chairman Roger Carr.''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.''The new firm will create a global market leader with over 40 confectionery brands each with annual sales of more than $US100 billion ($107.94 billion).But worries about job losses deepened after the pair admitted that they would make significant cost savings.If the deal is approved by regulators and

shareholders, the combined group will remould the chocolate sector and eclipse US firm Mars, which is currently the biggest confectionery company in the world.Investors welcomed Tuesday's news, sending Cadbury's share price 3.59 per cent higher to 836.5 pence in late trading on London's benchmark FTSE 100 index, which was slightly lower for the day.Under the deal, Kraft will pay 500 pence in cash and 0.1874 new Kraft Foods shares per Cadbury share.Cadbury shareholders will also receive 10 pence per share in a special dividend if the takeover is successful.Including this dividend, the improved Kraft offer is worth STG11.9 billion ($20.98 billion).Lifting the barBut the takeover will end more than 180 years of history and independence for the colourful maker of chocolate bar brands Crunchie, Fudge, Flake and Wispa, as well as Halls throat sweets and Trident chewing gum.Kraft's previous bid had valued the iconic British firm at about STG10.5 billion ($18.52 billion).''Kraft Foods believes a combination with Cadbury will provide the potential for meaningful cost savings and revenue synergies from which Cadbury security holders will benefit,'' the statement said.''Kraft Foods believes a combination represents a strong and complementary strategic fit, creating a global confectionery leader with a portfolio of more than 40 confectionery brands each with annual sales in excess of $US100 million ($A107.94 million).''In reaction to the announcement, British Prime Minister Gordon Brown said that his government was ''determined'' to help save jobs at Cadbury.Job fearsCadbury employs about 5,600 staff at eight factories in Britain and Ireland.There have been fears about British job losses, with trade union Unite warning Kraft would be saddled with huge debts leading them to axe 7,000 posts at Cadbury and 20,000 at the company's sub-contractors.Markets were meanwhile waiting to see if US chocolate maker Hershey would table its own offer for Cadbury.The Wall Street Journal last Friday reported that Hershey planned to bid at least $US17.9 billion ($19.32 billion) this week.There has also been talk of a possible joint bid for Cadbury from Hershey and Italian chocolate maker Ferrero.Cadbury's Dairy Milk is the

most popular chocolate bar in Britain - and the company sells more than 250 million bars every year in 33 countries around the world.Kraft, the world's second-biggest snacks group after Nestle, makes numerous well-known products including Dairylea cheese, Milka and Toblerone chocolate and Oreo cookies.''This recommended offer represents a compelling opportunity for Cadbury shareholders, providing both immediate value certainty and upside potential in the combined company,'' said Kraft boss Irene Rosenfeld.Kraft made a $16,3 billion bid for Cadbury today which was rejected on the basis of the offer not being high enough. Kraft will not be adjusting their pitch on the basis that their offer was not only fair but would benefit Cadbury's earnings in the long run as well as their own. Cadbury has already rejected an offer made by Kraft back in September and rebuked the US food company once again today. Cadbury will resist the merger until Kraft increases its offer to at least £8 per Cadbury share. Cadbury's concerns are namely the fear of becoming absorbed by a business conglomerate that will envelope its identity and success. Kraft, on the other hand, believes that a merger would allow both companies to expand their markets into other countries. Kraft, which makes of Ritz crackers and Oreo cookies, offered £3, or $4.90, in cash and 0.2589 new Kraft shares for every Cadbury share. The offer values each Cadbury share at £7.17, a 26 percent premium to the price before Kraft made its original proposal. Today's bid made by Kraft was a result of Britain's Takeover Panel deadline for a pitch to be made. Kraft had the choice to either make an offer or be banned from making any future offers within the following six months of the deadline.

If a deal can eventually be reached between Kraft and Cadbury, it will be the biggest merger to happen this year.Warren Buffet invested Kraft was finally able to up the offer beyond 840p without issuing additional equity and convince Cadbury to sign the dotted line, with the deal announcement after Tuesday afternoon’s deadline expires in London. The Nabisco acquisition is now history as Cadbury’s addition to Kraft

brings together a chocolate empire worth $50 billion in sales, trailing sales being $8.5b for Cadburys and rising at 15-20% per year. Kraft already has a $40 billion portfolio (DiGiorno Frozen Pizzas were sold to Nestle for $3.7 billion last week to get the extra cash)Kraft has reached a deal for a friendly takeover of Cadbury, tentatively agreeing to pay about $19 billion in cash and stock for the confectioner, people briefed on the matter said on Monday.Uniting Kraft and its Oreo cookies and Ritz crackers with Cadbury and its Trident gum and Dairy Milk chocolates would bring together a global food giant with more than $50 billion in revenue and a big presence in markets globally.Over the last decade, food companies have sought to gain scale by combining with each other, most recently with Mars buying the Wm. Wrigley Jr. Company in 2008 for $23 billion.The tentative deal for Cadbury would end a four-month battle for control of the British candy maker.Under the terms of the proposal, Kraft will pay 840 pence for each Cadbury share, while Cadbury will pay out a special dividend of 10 pence a share. The offer is about a 5 percent premium over Cadbury’s closing share price of 807.5 pence on Monday. The majority of the increase was in the cash component, which was raised to £5 a Cadbury share, from £3, a person briefed on the matter said.The takeover agreement is expected to be announced as soon as Tuesday, this person said, which is the last day Kraft can raise its offer under British takeover rules. People with knowledge of the matter cautioned that the talks were still continuing, so a deal might still fall apart.A commentator recently said that in the history of M&A activity there is no M&A deal that has made more people unhappy than the impending acquisition of Cadbury by Kraft. In light of the various views from the stakeholders involved in the Kraft and Cadbury’s merger, one may be fooled into believing that no one is going to win in this deal and that the deal is bad news for everyone. That is not the case because some of the stakeholders are going to emerge better off than they were in September 2009 when Kraft announced its intention to acquire Cadbury.This will briefly outline why Cadbury’s employees and Kraft’s shareholders are likely to emerge as

losers and why Cadbury shareholders will emerge as winners in this deal. This article will also briefly comment on Fitch, the rating company’s downgrading of both Kraft and Cadbury after the Cadbury recommended its shareholders to accept Kraft’s offer.The UnionsThe unions are of the view that Cadbury’s employees will be made scapegoats in the deal as they will end up being the soft targets because their wages and working terms may be sacrificed to ensure that the promised acquisition synergies are achieved. Its difficult to see how Cadbury’s employees are going to win, so yes, there will be few or no benefits at all accruing to them from the merger. One can therefore understand the reaction of the Unions to this acquisition.Kraft ShareholdersKraft shareholders led by Warren Buffett are unhappy about the acquisition because in their opinion Kraft is paying over the odds to acquire Cadbury. They are definitely going to lose because their company is paying a premium of 40% to own Cadbury. M&A activity is a zero sum game and unfortunately the party that wins is usually not the acquiring one. This argument is also supported by empirical evidence which show that the shareholders of the acquiring company always lose.Rating AgencyThe rating company Fitch downgraded both Kraft and Cadbury because of the risk nature of funding that will be used to finance the deal. There is no evidence of default risk, financial risk or risk to the going concern status of the two firms individually or of the merged firm should the acquisition go ahead. The downgrading is actually surprising because it assumes that capital structure matters very much to an organisation’s success.History is full of successful companies with high gearing ratios as long as they have good investment prospects. In this case it appears that both firms have good growth prospects as represented by their strong product portfolios which they are on the verge of taking into new markets, for example India and China.Cadbury ShareholdersThe Cadbury shareholders are crying foul because they think Kraft is getting their company on the cheap however this crying is without base or foundation. Actually they

will emerge as the biggest winner should the deal consummate. The share price of Cadbury equity stock has increased by 40% since Kraft announced its intention to acquire it. The shareholders of the target company are the other party in the zero sum game equation and they win every time an M&A deal consummates. The Cadbury shareholders will leave value on the table if they do not accept Kraft’s offer.After all it now appears as if Cadbury's shareholders will be laughing all the way to the bank and Kraft's shareholders will be licking their wounds. Cadbury's employees may turn out to be the ponies in the strategic game to be employed by Kraft in order to achieve the merger synergiesKraft and Cadbury Reach Merger Deal After several months of often contentious talks, Cadbury has accepted Kraft's takeover offer, creating the world's biggest confectioner in a deal valued around $19.4 billion. Cadbury had strongly resisted any such deal for months; at one point in November, Kraft went directly to Cadbury shareholders with terms, which the shareholders ultimately rejected.Tuesday, the 186-year-old candy company accepted Kraft's sweetened offer of 500 pence cash and 0.1874 new Kraft shares for every Cadbury share. All in all, that's about $13.40 per Cadbury share. Kraft's new offer is 60 percent cash, up from 40 percent, reflecting the earlier demands of shareholders, who now have until February 2 to accept the deal. Kraft's acquisition of Cadbury -- the combined company would have revenues last year of $50 billion -- gives it access to growing markets in Asia and Latin America, while Cadbury cited the benefits of a more efficient supply chain for its products.In other business news, Citigroup reported a $1.6 billion loss for the year.The bank lost $7.6 billion in the fourth quarter, despite profits in the past three quarters. The bulk of the losses came in connection to continued suffering in the bank's domestic mortgage and credit units and the repayment of government TARP funds. More earnings reports are on tap this week: Tomorrow, Bank of America*, Wells Fargo, U.S. Bancorp, and Morgan Stanley release their earnings. On Thursday, Morgan Stanley releases its reports. On Paul Solman's Making Sen$e page, a special Web-only video today showcases Harvard economist Richard Freeman mincing no words when discussing his thoughts on

Wall Street's current trajectory.LONDON, Sept. 7 (UPI) -- British chocolate maker Cadbury PLC Monday said it rejected a $16.7 billion merger offer from U.S. foods manufacturer Kraft Foods Inc.A statement released by Cadbury confirmed reports Kraft, of Northfield, Ill., had made the offer but its board of directors had rejected it, saying it "fundamentally undervalues" the venerable candymaker and it remains confident in its "standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope."Kraft's offer valued Cadbury shares at $28.10 and said a merger would "build on Kraft Foods' position as a global powerhouse in snacks, confectionery and quick meals with a rich portfolio of iconic brands." Its proposal is "a mix and match facility under which Cadbury shareholders could elect, subject to availability, to vary the proportions in which they would receive cash and new Kraft Foods shares," the U.S. company said in its own statement. Cadbury-Kraft merger has bondholders braced for new wave of M&APublished online only Author: Alice James Source: | 01 Mar 2010 Categories: Cash Bonds Topics: Cover story, Cadbury, Mergers &

acquisitions (M&A) European investors believe the takeover of Cadbury by Kraft could herald a stream of M&A finance bonds. While that may present bondholders with event-driven opportunities, the spectre of downgrades hangs over the outstanding bonds of businesses with takeovers in their sights.Related articles Rise in investor confidence boosts hopes of European securitisation market recovery

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The takeover in January of the UK chocolate maker Cadbury by US food giant Kraft drew a five-month headline-generating spat to a close. Cadbury’s own board had rejected Kraft’s initial advances and major Kraft shareholder Warren Buffett warned the US predator against paying too much for Cadbury. Eventually, though, Kraft prevailed with a £12 billion offer for the maker of Dairy Milk chocolate, but with a reassurance to stockholders in both firms that a massive 60% of that offer was to be in cash.

With equity valuations still subdued and bank credit lines no longer available long-term for such projects, the obvious route for funding was the bond market. So on February 4, Kraft tapped investors for $9.5 billion in dollar-denominated bonds, the largest sale of such securities since March 2009, according to Bloomberg data. That too was an M&A financing, which saw Pfizer issue $13.5 billion to help fund its purchase of Wyeth. In the preceding month, the Swiss pharmaceuticals company Roche Holdings had also issued a staggering $30.8 billion-equivalent in dollars, euros and sterling to part fund its acquisition of Genentech.

Kraft’s deal – led by BNP Paribas, Citi, Deutsche Bank, HSBC and Royal Bank of Scotland – was split into four tranches with maturities of 3.25 years, six years, 10 years and 30 years, with the bulk of the proceeds being used to repay an $11 billion bridge facility put in place to pay for the acquisition.

Launch spreads ranged from 140 basis points over Treasuries on the 3.25-year piece to 205bp on the 30-year bonds. However, all four tranches tightened dramatically in the weeks following the deal’s close: by February 23 the spread on the shortest-dated notes had come in to 80.7bp; the six-year bond had narrowed from 190bp to 142.5bp; the 10-year piece came in from 190bp to 121.8bp, while the 30-year bonds had tightened to 176.6bp.

Strong sentiment saw Warren Buffet’s Berkshire Hathaway tap the market in the same week as Kraft, with an $8 billion six-tranche offering to part-finance its $44 billion acquisition of railway operator Burlington Northern Santa Fe.

Spreads on the issue, led by JP Morgan, ranged from Libor minus 2bp on the one-year floating-rate notes to 93bp over Treasuries on the five-year notes. 

Investors such as Kevin Doran, a fund manager at UK investment house Brown Shipley, believe Kraft has further bond issues in mind to complete its refinancing of the deal, and may issue as much as $4 billion or so more in the coming months, either through private placements or a new sale. Market conditions indicate that Kraft’s snap-up of the confectioner, founded 186 years ago by Quakers, may be just the first in a string of takeovers funded by credit investors.

Window of opportunity

“We see a return of M&A during the year, not just because companies have access to the corporate bond markets but also because you are starting to see a real pick-up in GDP growth,” says Doran, who already holds some Cadbury bonds. “The cost of capital is so low at the moment, and banks are not lending as they once were. Given the strength of the credit markets, as a finance director, you have access to as much capital as you want at probably the lowest rates in history.”

Credit spreads point to strong ongoing demand for corporate debt and plenty of buyers. US investment grade corporate issuers paid on average just 169 basis points on February 8, 2010, according to Bank of America Merrill Lynch’s US Corporate Master Index, less than a third of the premium that investors demanded a year ago.

And base borrowing costs remain at historic lows, with the US Federal Reserve, the European Central Bank and the Bank of England unlikely to increase rates until the third quarter. Meanwhile corporate valuations, despite their strong rebound in 2009, remain substantially below their peak in late 2007, as measured by the US Dow Jones, Europe’s Stoxx 600 or the UK FTSE 100.

“The bond market’s appetite for corporate risk is strong now,” says Charles

Stephens, a debt capital markets specialist at Matrix Corporate Capital, a boutique investment bank. “Nearly every investment grade transaction that has come to market so far this year has been substantially oversubscribed. The bond markets are there to take out the bridge financing provided by banks for acquisition purposes. I wouldn’t go so far as to say the bond markets are driving M&A but their availability is a facilitating factor when putting together deals.”

Ivan Comerma, head of capital markets at Banc International-Banca Mora in Andorra, believes companies shouldn’t wait: today’s “perfect storm” of low borrowing costs, tight spreads, strong credit demand and cheap equity valuations is unlikely to last for long.

“As long as these conditions endure in the market, if you have found an opportunity and can show you are adding value without increasing leverage too much, you can go to the market and present investors with the deal,” he says. “Conditions in the market are excellent and I am not sure that will last too long. I am thinking the window will remain for the next six months or so.”

The strength of the euro versus the US dollar and sterling is proving a deterrent to would-be buyers of European companies. “I can picture transactions between the US and UK, but it is very hard to visualise any US or UK company as a buyer of a European name,” he says. “You need as a buyer not only to have good credit conditions and low rates, but you also need to feel your currency is strong enough to support the deal.”

Credit concerns over Greece and other smaller, more indebted Eurozone countries may lead to a weakening of the euro, which would help increase the M&A appeal of businesses based in Europe to predators outside the region.