M&A Kraft Cadbury

Mergers and Acquisitions Kraft Foods hostile takeover on Cadbury

Agenda
Why acquiring Cadbury?
Synergie
What is the fair price?
Financial valuation
Price adjustment
Structure of the deal
Challenges for the acquisition
After the deal
Group 2 | Mergers and Acquisitions

Kraft Foods Business Vision Group 2 | Mergers and Acquisitions

Why acquiring Cadbury? Irene Rosenfield’s expectations (Kraft CEO)

The synergies
A Complimentary Global Presence
Knowledge Sharing
Economies of Scale and Scope
Source: Strategic Management, Group D IMBA2010-N3 Kraft Cadbury

Financial Valuation ($ price per share) Valuation summary Bid range Current price
Stock trading history
52-week (low-high)
DCF
Stand Alone
+synergies
Trading comparables
2008 P/E multiple
2008 EBITDA multiple
2008 EBIT(1-t) multiple
2008 EBIT Multiple
Precedent transactions
Mars/Wrigley EBIT
Valuation with synergies $ 625 millions/year & Restructuring costs : $ 1.2 billion on 3 years

Deal Structure Pence + + = 0.1874 new Kraft share 500 pence cash 10 pence Dividend 850 1 Cadbury Share = 500 pence Cash + 0.1874 new Kraft Share + 10 pence Special Dividend = 850 Pence

Challenges

Kraft-Cadbury: hostile takeover takes time
Sept. 2009:
€ 13bn offer by
kraft foods
09 Nov. 2009:
Official hostile takeover
Kraft price €11,2bn
18 Nov. 2009
Hershey & Ferrero
interested by Cadbury
acquisition
19 Nov. 2009
KKR could make a
Common offer with
Hershey & Ferrero
02 Dec. 2009
Hershey offer
could be €13,5bn
07 Dec. 2009
UK govt will be
opposed to a simple
Financial operation
14 Dec. 2009
Cadburry refused
the kraft offer
06 Jan. 2010
EU commission
agreement
07 Jan. 2010
For the first time
Share price mkt <
Share price
kraft offer
19 Jan. 2010
New offer @ €13bn
04 Jan. 2010
Hershey hesitation
due to the risk of
increasing the
group debt
02 Fev. 2010
Cadbury shareholders accept Kraft bid
* REJECTED * * REJECTED *

Price Adjustment: from initial to final offer SEC Report 9 November 2009

What happened? Acquisition

Acquisition outcomes " Our integration is progressing extremely well… We moved quickly to name our leadership teams, and I'm pleased that about a third of our top 50 executives are from Cadbury. We've confirmed our synergy targets and the specific initiatives that will drive future margin expansion and accelerate our growth .“* * http://www.ibtimes.com/articles/22743/20100507/kraft-foods-gains-with-cadbury-integration.htm

Questions? Group 2 | Mergers and Acquisitions

Agreement terms
Cadbury shareolder offer: 500 pence cash and 0.1874 new Kraft share for each Cabdury share,
For each Cadbury ADS, shareolders will receive 2,000 pence and 0.7496 new Kraft share,
Offer equates to 840 pence per Cadbury share and 3,360 pence per Cadbury ADS, based on a Kraft share price of $29.58 (January 15 closing price) 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
Offer represents a multiple of 13.0 times Cadbury's 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 shares, representing 15 percent of its enlarged share capital
Cadbury says considers offer fair and reasonable

At a glance … Group 2 | Mergers and Acquisitions

Structure of the deal
Once Kraft gains 75 percent of Cadbury's shares, it can delist them. At more than 90 percent, it can force remaining Cadbury shareholders to sell.
Source: http://www.reuters.com/article/idUSTRE61124D20100202

Financing & agreement: $19,55bn deal worth Agreement Financing
Finance the acquisition consistent with an investment-grade rating
Selling of North American pizza business to Nestlé to acquire cash: US$3,7bn
60% of the offer finaning by cash
265 million new Kraft Foods Shares
Offer represents a multiple of 13.0 times Cadbury's underlying 2009 EBITDA
Cadbury shareolder offer: 500 pence cash and 0.1874 new Kraft share for each Cabdury share
Cadbury shareholders will get 10 pence per share by way of a special dividend

Why the price is fair
From firm valuation DCF (based on historical statements, considering different growth rates)
Valuation of Cadbury as stand alone
Valuation with the synergies 625 millions $ & Restructuring costs : 1.2 billions $ on 3 years

M&A Kraft Cadbury

by Henri Moufettal

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