M&A of Kraft & Cadbury


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M&A of Kraft & Cadbury

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  • Winner 1: Empirical research shows that the share price of the target company increases by over 30% as a result of acquisition announcement. The share price for Cadbury increased by 40% as a result of this acquisition announcement which is very good to their shareholders. Winner 3 : Stock market speculators It includes hedge funds, traders and arbitrageurs who anticipate any potential merger and acquisition deals before they are announced to the market.
  • M&A of Kraft & Cadbury

    1. 1. Kraft & CadburyHostile Takeover Analysis<br />GROUP MEMBERS:-<br />KartikVigneshNateshan - FT11129<br />KunalSinha - FT11130<br />SatyakiranAVS - FT11163<br />Sakthi Nivashan M S - FT11479<br />Shruti Agarwal - FT11483<br />
    2. 2. Index<br />Introduction to Kraft and Cadbury<br />Company Financials<br />Major Stakeholders<br />Timeline of the Takeover<br />Winners & Losers<br />Kraft Strategies<br />Cadbury Strategies<br />Post merger Integration issues<br />Plans after takeover<br />Current status<br />References<br />
    3. 3. Introduction<br />Kraft Food<br />Kraft Foods is the second largest food, and beverage corporation headquartered in United States and was formed on December 10, 1923 by Thomas H. McInnerney<br />Started with ICE cream manufacturing and later expanded into full range of dairy products. Enjoys presence in more than 155 countries<br />Kraft is an independent public company, it is listed on the New York Stock Exchange.<br />Cadbury<br />Cadbury is second largest confectionary, UK based company, started with manufacturing tea, coffee and, later, chocolate at Bull Street in Birmingham and was formed by John Cadbury In 1824. <br />The company was known as "Cadbury Brothers Limited".<br />In 1969 Cadbury Brothers Limited merged with Schweppes to form the international confectionery and beverage company “Cadbury Schweppes”.<br />In 1989, the company purchased Trebor Bassett, forming the UK confectionery subsidiary "Cadbury Trebor Bassett".<br />In 2009, Cadbury Trebor Bassett was renamed Cadbury UK. listed on the London Stock Exchange<br />
    4. 4. Financials<br />Kraft<br />Revenue US$40.4 Billion (FY 2009)<br />Operating income US$5.52 Billion (FY 2009)<br />Net income US$3.02 Billion (FY 2009)<br />Employees 98,000 (2008)<br />Cadbury<br />Revenue GB£5,384 million (2008)<br />Operating income GB£388 million (2008)<br />Net income GB£364 million (2008)<br />Employees 71,657 (2008)<br />
    5. 5. Major Stakeholders<br /> The major stakeholders in this acquisition deal are as follows:<br />Cadbury’s shareholders<br />M&A advisors<br />Stock market speculators<br />Senior management of Cadbury<br />Senior management of Kraft<br />Kraft’s shareholders<br />European Union<br />
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    7. 7. Timeline of the Takeover<br />AUG 28 – Initial Bid at 755 pence per Cadbury Share<br />SEPT 7 - Kraft goes public with the bid. Cadbury promptly rejects the bid.<br />SEPT 12 - Cadbury's Management rejects the bid saying it was an "unappealing prospect" being absorbed into Kraft's "low growth conglomerate business".<br />SEPT 16 - Warren Buffett, the world's second richest man and a leading shareholder in Kraft with a 9.4 percent stake, warned the U.S. food group not to overpay for Cadbury.<br />SEPT 21 - 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 Kraft to come up with a formal bid.<br />SEPT 25 - Cadbury's CEO says he does not believe Kraft's offer for his company made strategic or financial sense<br />SEPT 30 - 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.<br />OCT 21 - Cadbury posts upbeat third-quarter trading with underlying sales up 7 percent as it raise its 2009 target for sales and profit margin growth. The shares fail to react as a counter bidder for Kraft is seen increasingly unlikely.<br />
    8. 8. Timeline of the Takeover (contd..)<br />OCT 22 - Nestle and Hershey report third-quarter results but neither mention a speculated joint bid for Cadbury with Nestlé's focus on increasing its share buyback.<br />NOV 3 - Kraft's third-quarter results disappoint investors with weaker-than-expected revenue and as it cut its 2009 sales forecast. CEO Rosenfeld says she will not overpay for Cadbury.<br />NOV 9 - Kraft formalises its bid at the same terms for Cadbury as the original approach -- 300p in cash and 0.2589 new Kraft share for each Cadbury share -- valued at 717p.<br />NOV 18 - Both Italy's Ferrero and Hershey said separately they were reviewing a possible bid for Cadbury but gave no assurance that either would make an offer.<br />NOV 23 - Cadbury shares hits all-time high of 819-1/2 pence on speculation of a battle between Kraft and rivals for the British chocolate maker.<br />DEC 4 - 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 is now worth 713 pence a share or 10.1 billion pounds.<br />
    9. 9. Timeline of the Takeover (contd..)<br />DEC 14 - Cadbury issues its official defence document promising bigger dividends and strong growth as Cadbury reminds its shareholders that Hershey and Ferrero may bid.<br />DEC 18 - Cadbury CEO Todd Stitzer tells Reuters in an interview that a significant number of its major shareholders do not believe Kraft's bid reflects Cadbury stand-alone value.<br />JAN 5 - Kraft sweetens bid with 60p more cash but cuts shares on offer to keep offer price unchanged.<br />JAN 12 - Cadbury gives its final official defence against Kraft bid reporting robust trading and rejecting the bid on valuation. Ferrero pulls out, say sources close to the deal.<br />JAN 14 - Cadbury fires last words in its defence as media reports say that Hershey is looking at mounting a solo bid, but many analysts doubt whether Hershey can come up finance<br />JAN 19 – Cadbury accepts Kraft’s offer of GB£11.7 Billion ending months of Corporate battle valuing each Cadbury share at 840 Pence.<br />FEB 05- Kraft had secured over75% of the shares thus finalizing the deal.<br />MAR 08 -Cadbury shares was de-listed<br />
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    12. 12. Winners & Losers<br />Winner 1 : Cadbury’s Shareholders <br /> Sep 7, 2009 the market value of Cadbury increased by 40% to £10.2 billion , because of announcement by Kraft of its intention to acquire Cadbury. <br />Winner 2 : M&A advisors Most M&A advisors earn between half a percent and two percent of the deal’s values.(between £5 million and £20 million pounds).<br />Winner 3 : Stock market speculators They employ a merger arbitrage were they take two positions simultaneously for example a short position on Kraft’s shares and long position on Cadbury’s shares and the difference between these two positions represents their merger arbitrage <br />Winner 4 : Senior managers of Cadbury If the deals goes ahead they are going to get a bumper exit packages. If the acquisition does not materialise then they will keep their jobs plus they will also get bonus for fighting Kraft’s takeover. <br />Winner 5 : Senior managers of Kraft i) increase in their salaries because salaries are positively correlated to size of the firm <br /> ii) Non quantifiable benefits for example increase in pride, job security <br />Losers: Kraft‘s shareholders<br /> They have paid over the odds because they are paying a 40% premium to the pre-September 2009 share price level.<br />
    13. 13. Kraft Strategies<br />Kraft foods offered a cash cum stock deal to make it lucrative to the share holders and also it announced a 10 pence bonus dividend to shareholders to lure them to accept the deal.<br />After the initial rejections by Cadbury Management, Kraft made its proposals directly to Cadbury's shareholders over the heads of its board.<br />Kraft sold its Pizza brands including DiGiorno and Tombstone to Nestle and use proceeds from the $3.7 billion deal to boost the cash component of its Cadbury bid. <br />It got approval from EU Antitrust committee by divesting its Polish and Romanian chocolate businesses. This was done to maintain competition in the market.<br />It sweetened the deal by offering more cash and reducing the shares offered. This will be more useful for the shareholders given that the share price of the Kraft would be more volatile due to fresh issue of Kraft shares.<br />
    14. 14. Cadbury’s defensive Strategies<br />Cadbury moved the UK Take over panel to pressurize Kraft.<br />Cadbury discussed a rival offer with Pennysylvian company named Hershey(White Knight).<br />Cadbury was successful in boosting its 3rd Quarter results which made the company more valuable. (This could have also been Window Dressing)<br />Cadbury had a very significant proportion of long-term investors interested and involved in the stock, and were able to force Kraft to come to the UK and talk to the investors. This forced Kraft to negotiate instead of just rolling out an offer.<br />A big part of Cadbury’s defence strategy rested on limiting the impact of hedge funds in determining the deal. This prohibited Kraft to further lower the deal value by the use of hedge funds.<br />Corporate communication played and important part in Cadbury’s defense. The CEO and board were vocal about the lack of strategic purpose in the deal.<br />Cadbury constantly monitored their top 50 to 75 investors who might be contacted by Kraft them. It was a very tactical engagement to build people’s expectations of what value Cadbury could deliver in the face of Kraft’s offer.<br />Cadbury published documents in defense against the hostile strategy of Kraft on January 12 2010.<br />
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    17. 17. Post merger events : Workforce management & Tax avoidance<br />Strong focus on Post –Merger Integration plans especially among employees due to initial bitter batter in the corporate communications<br />Ensure key talent is retained due to the weak relationships among the management and the stakeholder warnings such as Warren Buffets<br />Debt loaded on Kraft foods due to the merger makes workforce optimisation imminent for the success of the deal. Optimal timing of this exercise is crucial<br />Communication synchronization – Somerdale factory event<br />Kraft Foods announced in December 2010 to move Cadbury's Headquarters and transfer Cadbury's to holding-company based in Switzerland in an attempt to avoid paying millions of pounds of tax to the UK Government.<br />On Jan 8th(Yesterday) the Indian Tax Authorities are seeking clarifications from Kraft regarding the deal to check for tax-evasion allegations<br />
    18. 18. Plans After Takeover<br />KRAFT is the worlds largest confectionery company.<br /><ul><li>Kraft believes combining KFT&CBY can be justified by the following value propositions:</li></ul>The combined company could target long-term organic revenue growth in excess of 5% and sustainable long-term EPS growth of 9 to 11%, whereas Kraft targets long-term organic revenue growth of 4% and EPS growth of 7 to 9% on a standalone basis.<br />The higher long-term growth rates in revenues and bottom lines will be driven by revenue synergies and $625 million identified annual cost savings.<br />Cadbury is highly complementary to Kraft’s geographical footprint and will increase developing markets’ contribution to Kraft’s net revenue from about 20% to about 25%.<br />
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    20. 20. Kraft-Cadbury - Today<br />13 % rise in the income YoY – suggests the synergy of the deal in action and integration plan<br />90 % of the income rise contributed by Cadbury division – right judgement from Kraft for geographical diversification of poor American market<br />34.1% boost in European revenues – new market entry for product portfolio<br />Entry of Kraft productions into India and Latin America through Cadbury channels with joint custom product development<br />
    21. 21. References<br />http://en.wikipedia.org/wiki/Kraft_Foods<br />http://en.wikipedia.org/wiki/Cadbury_plc<br />http://expertscolumn.com/content/potential-winners-and-losers-proposed-acquisition-cadbury-kraft<br />http://ceoworld.biz/ceo/2010/01/19/why-cadbury-agrees-kraft-takeover-bid<br />http://www.business-standard.com/india/news/kraft-gets-conditional-eu-nod-for-cadbury-deal/16/06/82536/on<br />http://www.insideinvestorrelations.com/articles/15896/chocolate-boxing-behind-scenes-kraft-and-cadbury/<br />http://www.dnaindia.com/money/report_taxman-at-cadbury-door-seeks-kraft-deal-details_1491753<br />http://timesofindia.indiatimes.com/business/international-business/Buffett-opposes-Krafts-takeover-of-Cadbury/articleshow/5482536.cms<br />http://in.reuters.com/article/idINIndia-45520920100119?pageNumber=2<br />http://knowledge.wharton.upenn.edu/india/article.cfm?articleid=4451<br />http://www.alcibi.com/business_hieroglyphics/mergers-acquisitions/merger-integration/the-kraft-cadbury-marriage-will-it-work/<br />http://www.businessweek.com/managing/content/feb2010/ca2010028_928488_page_2.htm<br />
    22. 22. END<br />