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This case deals with the
hostile takeover of UK-
based Cadbury Plc (Cadbury) by the US-
based Kraft Foods (Kraft)
Pre-Merger History of Kraft and
Cadbury
KRAFT FOODS
• Established in: 1903 by James L. Kraft
• Headquarters: Northfield, Illinois
• Major Markets: North America
• Revenue: $38,754 mil in 2009 (excluding
Cadbury)
CADBURY
• Established in: 1924 by John Cadbury
• Headquarters: Uxbridge, United Kingdom
• Major Markets: Europe and Asia
• Revenue: £5,975mil in 2009
Acquisition Rationale
KRAFT FOODS
• Build upon Cadbury's brand and heritage by
investment and innovation
• Diversify geographically exploiting the European
and developing markets
• Long-term growth strategy
CADBURY
• US business getting stagnant
• Benefit from the Kraft Foods’ global scope,
scale and array of technologies and processes
• Importance of scale in the food industry
Entering Emerging
Markets
Overcoming Entry
Barriers
Increased Market
Power
TIMELINE- KEY EVENTS
28 Aug ‘09
755p, but dismissed
07 Sept’ 09
745p, but dismissed
16 Sept’09
Warren Buffett
terms it “bad deal”
21 Sept’ 09
“put up or shut up”
30 Sept’09
Until 9th Nov to make
offer
03 Nov’ 09
Kraft’s disappointing
results
18 Nov’09
Ferrero & Hershey
review bid
23 Nov’09
Speculation results
in 819.5p
04 Dec’09
Offer of 713p
14 Dec’09
Cadbury increases
targets and dividend
12 Jan’10
Cadbury beat target
19 Jan’10
Kraft seals deal for
£11.9 bn
WARREN BUFFETT’S OPINION
• Berkshire Hathaway group owns 9.4% of Kraft
• Said he "felt poor“ and "has a lot of doubts“
• Particularly displeased with payment in new
shares because he feels they are under valued
• Unimpressed as Kraft sold pizza biz to raise cash
• Result- Kraft shares fell 2.2%
FINAL OFFER
• Kraft offers £11.9bn
• Cadbury shareholders offered 500p in cash
• Also, 0.1874 Kraft stock for each share they
own
• This values Cadbury at 840p per share
• Shareholders will also receive a special 10p
dividend
• Cash now makes up 60% of the offer
RISK FACTORS
• Relating to Kraft’s and Cadbury’s business
• Relating to Kraft’s common stock
• Relating to the offer
• Relating to market and currency fluctuation
FINANCING OF THE OFFER
• Use borrowings from the bridge facility
• Launch bond issue to re-finance bridging loan
• Pizza business sold for $3.7bn
POST MERGER ANALYSIS
• Big chance to generate cost savings
• Save £430mil annually, by integrating IT systems
and infrastructure
• More acquisitions and expansions
JOB FEARS
• No specific assurances over the future of 4,500
UK jobs
• Said it wanted to invest in the Bournville site
• Promised to keep Cadbury's Somerdale factory
open
• But backtracked and closed the plant in 2011
HOW THIS DEAL CHANGED TAKEOVERS
• Prompted revamp of rules governing how foreign
firms buy UK companies
• Changes made to the Takeover Code in Sept’11
• Increased disclosure from bidders on post purchase intentions
• Greater prominence to views of employees
• Deal protection measures were banned
• This strengthened the hand of UK companies targeted
for takeover
THANK YOU

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Cadbury Kraft Merger 2010

  • 1. This case deals with the hostile takeover of UK- based Cadbury Plc (Cadbury) by the US- based Kraft Foods (Kraft)
  • 2. Pre-Merger History of Kraft and Cadbury KRAFT FOODS • Established in: 1903 by James L. Kraft • Headquarters: Northfield, Illinois • Major Markets: North America • Revenue: $38,754 mil in 2009 (excluding Cadbury)
  • 3. CADBURY • Established in: 1924 by John Cadbury • Headquarters: Uxbridge, United Kingdom • Major Markets: Europe and Asia • Revenue: £5,975mil in 2009
  • 4. Acquisition Rationale KRAFT FOODS • Build upon Cadbury's brand and heritage by investment and innovation • Diversify geographically exploiting the European and developing markets • Long-term growth strategy
  • 5. CADBURY • US business getting stagnant • Benefit from the Kraft Foods’ global scope, scale and array of technologies and processes • Importance of scale in the food industry Entering Emerging Markets Overcoming Entry Barriers Increased Market Power
  • 6. TIMELINE- KEY EVENTS 28 Aug ‘09 755p, but dismissed 07 Sept’ 09 745p, but dismissed 16 Sept’09 Warren Buffett terms it “bad deal” 21 Sept’ 09 “put up or shut up” 30 Sept’09 Until 9th Nov to make offer 03 Nov’ 09 Kraft’s disappointing results 18 Nov’09 Ferrero & Hershey review bid 23 Nov’09 Speculation results in 819.5p 04 Dec’09 Offer of 713p 14 Dec’09 Cadbury increases targets and dividend 12 Jan’10 Cadbury beat target 19 Jan’10 Kraft seals deal for £11.9 bn
  • 7. WARREN BUFFETT’S OPINION • Berkshire Hathaway group owns 9.4% of Kraft • Said he "felt poor“ and "has a lot of doubts“ • Particularly displeased with payment in new shares because he feels they are under valued • Unimpressed as Kraft sold pizza biz to raise cash • Result- Kraft shares fell 2.2%
  • 8. FINAL OFFER • Kraft offers £11.9bn • Cadbury shareholders offered 500p in cash • Also, 0.1874 Kraft stock for each share they own • This values Cadbury at 840p per share • Shareholders will also receive a special 10p dividend • Cash now makes up 60% of the offer
  • 9. RISK FACTORS • Relating to Kraft’s and Cadbury’s business • Relating to Kraft’s common stock • Relating to the offer • Relating to market and currency fluctuation
  • 10. FINANCING OF THE OFFER • Use borrowings from the bridge facility • Launch bond issue to re-finance bridging loan • Pizza business sold for $3.7bn
  • 11. POST MERGER ANALYSIS • Big chance to generate cost savings • Save £430mil annually, by integrating IT systems and infrastructure • More acquisitions and expansions
  • 12. JOB FEARS • No specific assurances over the future of 4,500 UK jobs • Said it wanted to invest in the Bournville site • Promised to keep Cadbury's Somerdale factory open • But backtracked and closed the plant in 2011
  • 13. HOW THIS DEAL CHANGED TAKEOVERS • Prompted revamp of rules governing how foreign firms buy UK companies • Changes made to the Takeover Code in Sept’11 • Increased disclosure from bidders on post purchase intentions • Greater prominence to views of employees • Deal protection measures were banned • This strengthened the hand of UK companies targeted for takeover