M&A Kraft Cadbury


Published on

Mergers and Acquisitions Case: Kraft hostile takeover on Cadbury.

After reviewing operations, finance, marketing, supply chain management, this practical example supported my learning within the legal international frame.

Penultimate presentation carried out within a mostly French group, interesting :)

Published in: Business
No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide
  • Focus on growth to be the leader in snack, confectionery and quick meals industries Achieve sufficient scale to establish cost-efficient infrastructure by expanding its presence in emerging market Optimise sales capabilities by increasing its presence in the instant consumption channels as they continue to gain share versus grocery channels in the US and European Union Increase their margin by reducing costs without impact on the quality of their products and improving the portfolio mix
  • What are the motivations to acquire cadbury The acquisition of Cadbury will allow Kraft to expand its global presence. Indeed Kraft will be able to be present in South America, Eastern Europe, Russia and China. The group will as well be able to reinforce its position in France and Spain. Kraft and Cadbury Merger Group D (Section N3, IMBA Nov 2009 Intake)
  • M&A: 51% or 100% Change shareholders pact Tax law Put a deadline to offer and shareholders who have accepted previous offer Real Share Price at purchase time : 13.8 (19.7 BILLION) 14.21 -> 20.3 Billion 10.62 -> 15.1 Bilion
  • Cash & Stock Agreement http://www.reuters.com/article/idUSTRE60H1N020100120
  • Challenges obstacles and deal killers Politics Antitrust New Buyers International: M&A usually not easy, here cultultral, tax issues, exchange rate
  • Acquisition take more time than mergers- longer time than mergers, and different reactions of the bidders who can use some defensive mechanism, lose focus of high management on day to day, hence have to ease it. Possible defence of cadbury Increase expectations Find white knoght Increase dividends to shareholders
  • Other challenges, as part of cash and part are shares. Currency, shares not static during the whole time, justification of fairness of the acquisitions In M&A we also have to take into price adjustment, in this case as prie offer was below market valuation Kraft had to increase its offer.
  • M&A Kraft Cadbury

    1. 1. Mergers and Acquisitions Kraft Foods hostile takeover on Cadbury
    2. 2. Agenda <ul><li>Why acquiring Cadbury? </li></ul><ul><ul><li>Synergie </li></ul></ul><ul><li>What is the fair price? </li></ul><ul><ul><li>Financial valuation </li></ul></ul><ul><ul><li>Price adjustment </li></ul></ul><ul><ul><li>Structure of the deal </li></ul></ul><ul><li>Challenges for the acquisition </li></ul><ul><ul><li>After the deal </li></ul></ul>Group 2 | Mergers and Acquisitions
    3. 3. Kraft Foods Business Vision Group 2 | Mergers and Acquisitions
    4. 4. Why acquiring Cadbury? Irene Rosenfield’s expectations (Kraft CEO)
    5. 5. The synergies <ul><li>A Complimentary Global Presence </li></ul><ul><li>Knowledge Sharing </li></ul><ul><li>Economies of Scale and Scope </li></ul>Source: Strategic Management, Group D IMBA2010-N3 Kraft Cadbury
    6. 6. Financial Valuation ($ price per share) Valuation summary Bid range Current price <ul><li>Stock trading history </li></ul><ul><ul><li>52-week (low-high) </li></ul></ul><ul><li>DCF </li></ul><ul><ul><li>Stand Alone </li></ul></ul><ul><ul><li>+synergies </li></ul></ul><ul><li>Trading comparables </li></ul><ul><ul><li>2008 P/E multiple </li></ul></ul><ul><ul><li>2008 EBITDA multiple </li></ul></ul><ul><ul><li>2008 EBIT(1-t) multiple </li></ul></ul><ul><ul><li>2008 EBIT Multiple </li></ul></ul><ul><li>Precedent transactions </li></ul><ul><ul><li>Mars/Wrigley EBIT </li></ul></ul>Valuation with synergies $ 625 millions/year & Restructuring costs : $ 1.2 billion on 3 years
    7. 7. 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
    8. 8. Challenges
    9. 9. Kraft-Cadbury: hostile takeover takes time <ul><li>Sept. 2009: </li></ul><ul><li>€ 13bn offer by </li></ul><ul><li>kraft foods </li></ul><ul><li>09 Nov. 2009: </li></ul><ul><li>Official hostile takeover </li></ul><ul><li>Kraft price €11,2bn </li></ul><ul><li>18 Nov. 2009 </li></ul><ul><li>Hershey & Ferrero </li></ul><ul><li>interested by Cadbury </li></ul><ul><li>acquisition </li></ul><ul><li>19 Nov. 2009 </li></ul><ul><li>KKR could make a </li></ul><ul><li>Common offer with </li></ul><ul><li>Hershey & Ferrero </li></ul><ul><li>02 Dec. 2009 </li></ul><ul><li>Hershey offer </li></ul><ul><li>could be €13,5bn </li></ul><ul><li>07 Dec. 2009 </li></ul><ul><li>UK govt will be </li></ul><ul><li>opposed to a simple </li></ul><ul><li>Financial operation </li></ul><ul><li>14 Dec. 2009 </li></ul><ul><li>Cadburry refused </li></ul><ul><li>the kraft offer </li></ul><ul><li>06 Jan. 2010 </li></ul><ul><li>EU commission </li></ul><ul><li>agreement </li></ul><ul><li>07 Jan. 2010 </li></ul><ul><li>For the first time </li></ul><ul><li>Share price mkt < </li></ul><ul><li>Share price </li></ul><ul><li>kraft offer </li></ul><ul><li>19 Jan. 2010 </li></ul><ul><li>New offer @ €13bn </li></ul><ul><li>04 Jan. 2010 </li></ul><ul><li>Hershey hesitation </li></ul><ul><li>due to the risk of </li></ul><ul><li>increasing the </li></ul><ul><li>group debt </li></ul><ul><li>02 Fev. 2010 </li></ul><ul><li>Cadbury shareholders accept Kraft bid </li></ul>* REJECTED * * REJECTED *
    10. 10. Price Adjustment: from initial to final offer SEC Report 9 November 2009
    11. 11. What happened? Acquisition
    12. 12. Acquisition outcomes &quot; 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
    13. 13. Questions? Group 2 | Mergers and Acquisitions
    14. 15. Agreement terms <ul><li>Cadbury shareolder offer: 500 pence cash and 0.1874 new Kraft share for each Cabdury share, </li></ul><ul><li>For each Cadbury ADS, shareolders will receive 2,000 pence and 0.7496 new Kraft share, </li></ul><ul><li>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. </li></ul><ul><li>Cadbury shareholders will get 10 pence per share by way of a special dividend </li></ul><ul><li>Offer values Cadbury at approximately 11.9 billion pounds </li></ul><ul><li>Offer represents a multiple of 13.0 times Cadbury's underlying 2009 EBITDA </li></ul><ul><li>Kraft to reduce the number of acceptances required from 90 percent to 50 percent plus one Cadbury Share </li></ul><ul><li>Final offer does not require the approval of Kraft shareholders </li></ul><ul><li>Full acceptance will result in the issue of 265 million new Kraft shares, representing 15 percent of its enlarged share capital </li></ul><ul><li>Cadbury says considers offer fair and reasonable </li></ul>
    15. 16. At a glance … Group 2 | Mergers and Acquisitions
    16. 17. Structure of the deal <ul><li>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. </li></ul><ul><li>Source: http://www.reuters.com/article/idUSTRE61124D20100202 </li></ul>
    17. 18. Financing & agreement: $19,55bn deal worth Agreement Financing <ul><ul><li>Finance the acquisition consistent with an investment-grade rating </li></ul></ul><ul><ul><li>Selling of North American pizza business to Nestlé to acquire cash: US$3,7bn </li></ul></ul><ul><ul><li>60% of the offer finaning by cash </li></ul></ul><ul><ul><li>265 million new Kraft Foods Shares </li></ul></ul><ul><ul><li>Offer represents a multiple of 13.0 times Cadbury's underlying 2009 EBITDA </li></ul></ul><ul><ul><li>Cadbury shareolder offer: 500 pence cash and 0.1874 new Kraft share for each Cabdury share </li></ul></ul><ul><ul><li>Cadbury shareholders will get 10 pence per share by way of a special dividend </li></ul></ul>
    18. 19. Why the price is fair <ul><li>From firm valuation DCF (based on historical statements, considering different growth rates) </li></ul><ul><li>Valuation of Cadbury as stand alone </li></ul><ul><li>Valuation with the synergies 625 millions $ & Restructuring costs : 1.2 billions $ on 3 years </li></ul>