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Mergers & Acquisitions
Cadbury• Started by John Cadbury in 1824• Headquartered in Cadbury House in the  Uxbridge Business Park in Uxbridge, Londo...
Kraft Foods• World’s second largest food company after Nestle  with presence in more than 150 countries• Headquartered at ...
Timeline of Deal            • Krafts Chairman and CEO Irene Rosenfeld meets Cadburys Chairman Roger Carr offer to         ...
Timeline of Deal (contd.)              • Cadbury contacts the UK Takeover Panel to request a "put up or shut              ...
Timeline of Deal (contd.)              • Both Italys Ferrero and Hershey said separately they were reviewing              ...
Timeline of Deal (fnshd.)           • Cadbury releases it final defense document, attacking Krafts             management ...
Reasons for the DealEntering Emerging market through cross border AcquisitionsOvercoming Entry Barriers in New MarketsI...
Entering      Emerging      MarketsIndia, China, Mexico , Brazil & South Africa areamong the strongestemerging marketsKr...
Entering             Overcoming       Emerging                Entry        Markets              BarriersEstablished brands...
Entering              Overcoming     Emerging                 Entry      Markets               BarriersEconomies of Scale ...
Entering              Overcoming                 Increased      Emerging                 Entry                    Market  ...
ProblemsInadequate Evaluation of Target:500p in cash and 0.1874 Kraft shares for each Cadburyshare. According to Buffet w...
Integration   Kraft      Mananged radically different from Cadbury      How much can Kraft be expected to change its ow...
Cultural• Sir Dominic and Sir Adrian Cadbury said: "In the context of  a bid, the high percentage that fail to live up to ...
Cultural (contd.)   Softer cultural problems crucial impediments to effective integration   Successful creation of leade...
Other Aspects   Working Relationship          Irene Rosenfelds remote management style   Turnover of Key Personnel      ...
Implications of Cultural        Change                Kraft                            Cadbury        Strengthened Brand  ...
ITKraft hoped to save £430m annually, largely by integrating the companies IT systemsBoth Kraft and Cadbury rely on system...
Market Presence            • 160 countries            • 99% households in US            • 15 ‘billion dollar’ brands      ...
Recommendations• Focus on power brands  – Global Brands: Oscar Mayer, Jacobs, Tang etc.  – Local Brands: A-1 steak sauce(N...
Recommendations (contd.)• Snacks category                                              15 overall  – High growth, high mar...
Recommendations (contd.)• New categories  – Gum, candy  – New markets  – 360° communication strategy, range re launch, new...
Recommendations (contd.)• Cost based synergies  – end to end productivity growth     • procurement, manufacturing, custome...
Kraft   cadbury merger
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Kraft cadbury merger

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Kraft cadbury merger

  1. 1. Mergers & Acquisitions
  2. 2. Cadbury• Started by John Cadbury in 1824• Headquartered in Cadbury House in the Uxbridge Business Park in Uxbridge, London Borough of Hillingdon• Started producing the world famous Dairy Milk Chocolate in 1905• In 1969 the Cadbury Group merged with Schweppes• Taken over by Kraft foods on 19 jan, 2010
  3. 3. Kraft Foods• World’s second largest food company after Nestle with presence in more than 150 countries• Headquartered at Northfield, Illinois, US• Current Chairman and CEO : Irene Rosenfeld• Kraft Foods was formed on December 10, 1923 by Thomas H. McInnerney• Famous Brands include - Philadelphia cheese, Oreo biscuits and Trident gum• Eleven $1 billion brands with operations in about 70 countries
  4. 4. Timeline of Deal • Krafts Chairman and CEO Irene Rosenfeld meets Cadburys Chairman Roger Carr offer to buy Cadbury in a cash and share deal which valued Cadburys shares at 755 pence August each, but Carr dismissed the approach, the Kraft bid was worth 300p in cash and 0.2589 28, 2009 new Kraft shares for each Cadbury share • Kraft goes public with the bid, but by this time the value of the same offer had slipped to 745p per Cadbury share, or 10.2 billion pounds. Cadbury promptlySeptember 7, 2009 rejects the bid. • Cadburys Carr in a letter to Rosenfeld again rejects the bid saying it was an "unappealing prospect" being absorbed into Krafts "low growthSeptember 12, 2009 conglomerate business". • Warren Buffett, the worlds second richest man and a leading shareholder in Kraft with a 9.4 percent stake, warned the U.S. food group not toSeptember 16, 2009 overpay for Cadbury.
  5. 5. Timeline of Deal (contd.) • Cadbury contacts the UK Takeover Panel to request a "put up or shut up" request be sent to Kraft, which would give a time frame for KraftSeptember 21,2009 to come up with a formal bid • UK Takeover Panel rules that Kraft has until 1700 GMT on Nov 9 to make a formal offer for Cadbury or walk away for six months. Cadbury reiterates itsSeptember 30, 2009 rejection of the Kraft bid • Krafts third-quarter results disappoint investors with weaker-than- expected revenue and as it cut its 2009 sales forecast. CEO RosenfeldNov 3, 2009 says she will not overpay for Cadbury • Kraft formalises its bid at the same terms for Cadbury as the original approach -- 300p in cash and 0.2589 new Kraft share for eachNov 9, 2009 Cadbury share -- valued at 717p
  6. 6. Timeline of Deal (contd.) • Both Italys Ferrero and Hershey said separately they were reviewing a possible bid for Cadbury but gave no assurance that either wouldNovember 18, 2009 make an offer • Kraft posts its offer document to Cadbury shareholders starting off a two- month fight for the British group under UK takeover rules. Kraft says its bid isDecember 4, 2009 now worth 713 pence a share or 10.1 billion pounds • Cadbury CEO Todd Stitzer tells Reuters in an interview that a significant number of its major shareholders do not believe Krafts bidDecember 18, 2009 reflects Cadbury stand-alone value • Kraft sweetens bid with 60p more cash but cuts shares on offer toJan 3, 2010 keep offer price unchanged
  7. 7. Timeline of Deal (fnshd.) • Cadbury releases it final defense document, attacking Krafts management and revealing that it beat its own target forJanuary14, 2010 operating margins in 2009 • Cadbury board recommends £12January18, 2010 million sale to Kraft
  8. 8. Reasons for the DealEntering Emerging market through cross border AcquisitionsOvercoming Entry Barriers in New MarketsIncreased Market PowerValuation of Cadbury by 50% more than market valueBreaking new grounds by Cadbury
  9. 9. Entering Emerging MarketsIndia, China, Mexico , Brazil & South Africa areamong the strongestemerging marketsKraft has very little footprint in these placesapart from ChinaMost of its revenues come from North & SouthAmerica & Europe which have very slow growthCadbury is a cross-border acquisition to enterinto growth markets in Asia, Middle-East & Africa
  10. 10. Entering Overcoming Emerging Entry Markets BarriersEstablished brands:ITC, Pepsico etc. are already established in food & ESTD.beveragesKraft alone would have to spend a fortune on S&Mto enter those marketsStrong brand name of Cadbury in emerging marketswould result in cost saving & easy penetration Extensive Distribution Network: Fragmented supply chain in developing countries Cadbury sales out of 1.2 million kirana stores in India. 98% of food purchase done through these stores Access to this huge network which from scratch would have taken millions of dollars & years of time
  11. 11. Entering Overcoming Emerging Entry Markets BarriersEconomies of Scale scale necessary to grow sales and distribution in new and existing markets $1 billion in incremental revenue synergies & $750 million in cost synergies - by 2013 Diversification and Risk Reduction Coverage of more diversified & promising markets High margins --Chocolate & chewing gum. 14% confectionary market: Gum, highest growth rate:Gum Increased presence in the Gum market: Cadbury market leader: share 29%, Kraft: share 0.1%
  12. 12. Entering Overcoming Increased Emerging Entry Market Markets Barriers PowerOverall Size and Market Share Joint portfolio of more than 40 confectionary brands, each with annual sales in excess of $100 million Created the worlds biggest confectionary company Kraft Foods became the undisputed world leader in Snacks a high-growth, high-margin category based Synergies Increased Cost and Revenue  Horizontal acquisition: Economies of scope  More bargaining power vis-a-vis customers & suppliers
  13. 13. ProblemsInadequate Evaluation of Target:500p in cash and 0.1874 Kraft shares for each Cadburyshare. According to Buffet which was “a pretty full price” i.e.much higher than actual & Kraft shares undervaluedLarge Debt: Debt of $ 9.5 billion. Recoverable within 13 years at thethen income level (3.25, 6, 10, 30 year bonds throughDB, HSBC, RBS, BNP Paribus)Too much diversification? Not reallyManagers Overly Focused on Acquisition?PossiblyToo Large? Should not be a problem
  14. 14. Integration Kraft  Mananged radically different from Cadbury  How much can Kraft be expected to change its own culture.  Honouring Cadburys Fair Trade credentials  Unreliable precedents: Closed the Terrys factory in York after buying it in 1993, despite promising to keep it open. Kraft is, in fact, known to have integrity issues. Habit of taking over great national institutions – Danone, Cadbury Did not close biscuit manufacturing facilities in France for at least three years and increased investments also
  15. 15. Cultural• Sir Dominic and Sir Adrian Cadbury said: "In the context of a bid, the high percentage that fail to live up to the claims of the bidder are well documented. The risks of relative failure in takeovers are therefore clear. Those risks are considerably increased if the bidder fails to win the loyalty and support of the employees on whom the continuing fortunes of the enterprise depend."
  16. 16. Cultural (contd.) Softer cultural problems crucial impediments to effective integration Successful creation of leadership team is led by the CEO: requires commitment and focus on the part of CEO to get beyond just hitting ‘synergy targets and set time aside to develop the leadership team early on Leadership team developed most effectively by involving employees from both the merged entities in specific business planning activities Building a leadership team following an acquisition is an important, painful process that sets the tone for the wider integration Fears at Cadbury About taste of chocolates to work environment Krafts bureaucratic work structures Orwellian feel
  17. 17. Other Aspects Working Relationship Irene Rosenfelds remote management style Turnover of Key Personnel Exodus of experienced Cadbury management HR Integration Job Redundancies Changes to compensation package Non-resolution of Uncertainty Lack of clear communication with acquired employees
  18. 18. Implications of Cultural Change Kraft Cadbury Strengthened Brand Damaged HeritageDrives higher performance leading to Lower Moral and Performance better revenues Better Control of organization Staff Burnout Better Reputation Risk of losing benefit schemes Efficiencies through alignment of Trust Issues processes Alignment of goals Changed Brand Personality
  19. 19. ITKraft hoped to save £430m annually, largely by integrating the companies IT systemsBoth Kraft and Cadbury rely on systems provided by SAP, one of the world leaders inenterprise resource planning (ERP) systemsDue diligence process in any merger should include an assessment of the target companysIT to quantify any risks to business continuity, outline the required operational and capitalexpenditure for the first 12 months following the acquisition, identify the opportunities forsynergy and define the high level integration planUnfortunately CIO is often the last person to know about the deal!Where a larger company takes over a smaller one, it is common to export data from thesmaller company system and merge it into the larger oneBoth Kraft and Cadbury relied on SAP giving them a slight advantage, but SAP and otherERP systems are usually heavily customised to suit different situations, so integration wasan issue
  20. 20. Market Presence • 160 countries • 99% households in US • 15 ‘billion dollar’ brands • 70 ‘mn dollar’ brands • More than 40 brands are 100 years old • Regional brands • 80% are #1 or #2
  21. 21. Recommendations• Focus on power brands – Global Brands: Oscar Mayer, Jacobs, Tang etc. – Local Brands: A-1 steak sauce(North America), Dairylea cheese(U.K.), Vegemite spreads(Australia) etc. – Acquired brands: Cadbury, Halls, Bubbaloo etc. – Flexible business models, Nimble marketing
  22. 22. Recommendations (contd.)• Snacks category 15 overall – High growth, high margin – Shared innovation, Integrated marketing 10 in snacks – Reframe biscuit category • Umbrella branding – Brand repositioning
  23. 23. Recommendations (contd.)• New categories – Gum, candy – New markets – 360° communication strategy, range re launch, new products• Cadbury’s strongholds – India & other colonial countries –o – Supply chain networks, distribution channels
  24. 24. Recommendations (contd.)• Cost based synergies – end to end productivity growth • procurement, manufacturing, customer service & logistics. – Integrated manufacturing facilities Overhead costs • cross category model, simplified processes• More acquisitions – Years of expansion in Europe – Successful track record

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