Kraft Foods M;a
Written Case Analysis On Case studied by: Case: Cadbury agrees, Kraft takeover bid Story: In 2009, the US food company Kraft Foods launched a hostile bid for Cadbury, the UK-listed chocolate maker. Cadbury is a popular British confectionery company and is the industry’s second-largest globally after Mars, Incorporated. It was acquired by Kraft Foods in January 19, 2010.
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. A “Krafty” Approach to Cadbury: Cadbury, founded by John Cadbury in 1824 in Birmingham, England, had also grown through mergers and demergers. When the Kraft Foods on September 7, 2009 made its first indicative takeover bid for Cadbury, it was rejected stating that it undervalued the company.
It was rejected again on November 9, 2009 before the Cadbury agreed Kraft after launching a formal, hostile bid valuing the firm at ? 9.
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8 billion on 19 January 2010. Pre-acquisition: 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. The Response: The acquisition of Cadbury faced widespread disapproval from the British public, as well as groups and organizations including trade union, Unite.
Unite estimated that a takeover by Kraft could put 30,000 jobs “at risk”. Controversially, RBS, a bank 84% owned by the United Kingdom Government, funded the Kraft takeover. The Challenge: The challenge for Kraft was how to buy Cadbury when it was not for sale. Not only was Cadbury not for sale, but it actively resisted the Kraft takeover. Its first act was to brand the 745 pence-per-share offer “unattractive”, saying that it “fundamentally undervalued the company”. The team made clear that even if the company had o succumb to an unwanted takeover, almost any other confectionery company (Nestle, Ferrero and Hershey) 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. Why Cadbury? * To extend the business : Location, markets, globalization * Change competitive structures: consolidation, remove competition, economies of scale * Improve business capabilities: Access better technology, stimulate innovation Post Acquisition:
A few months after Kraft acquired Cadbury in an $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.
The nub of the problem, though, is that the Cadbury side of the operation feels it is not getting the attention it deserves for its dominant position in the Indian market. Revenues grew by 27% in 2010, making India one of the fastest-growing operations for Kraft globally. And Cadbury brands account for over 90% of revenues of roughly Rs 2,500 crore. Growth in the current year is expected to be even higher. Kraft, on the other hand, hasn’t focused on India in the past, and is now trying to make up for lost time by riding on its more successful ally.