In the end, Irene Rosenfeld’s backed up her desire to acquire Cadbury PLC with something few shareholders could resist - more money. In upping the company’s bid for the British candy maker from $17.1 billion to $19.5 billion, Kraft Food’s chief executive made it difficult for management to say no.
On Jan. 19, Chairman Roger Carr announced that Cadbury’s board had agreed to the revised bid, and in a joint statement, said the new offer “represents good value for Cadbury shareholders.”
Specifically, Kraft said it would pay 500 pence in cash and offer 0.1874 new Kraft shares for each share of Cadbury. The total compensation adds up to 840 pence, about $13.80 for each share. According to Kraft, the amount represents 13 times Cadbury’s earnings, with 60% being in cash and the remainder in company shares.
Cadbury shareholders approved the deal Feb. 2, creating a global confectionery giant, and making Kraft Foods the world leader in chocolate and sweets, and No. 2 in the gum market.The acquisition gives Kraft “40 confectionery brands each with annual sales in excess of $100 million dollars.” It also delivers “a highly complementary geographic footprint” by capitalizing on each company’s strengths in high-growth developing markets such as Brazil, Russia, India, China and Mexico.
In addition, the move will enhance Kraft’s access to “instant consumption channels,” that is, convenience stores and gas marts, where Cadbury has a strong distribution network.Noting that “confectionery markets are consolidating, and scale is becoming increasingly important,” Kraft sees the addition of Cadbury to its fold as critical to competing more effectively.
Rosenfeld emphasized that the acquisition “is about growth” and that Kraft would increase “investment in Cadbury’s iconic brands.” The aim is to create the “leading snack, confectionery and quick meals company,” she added.
Citing the success of past previous acquisitions, going back to Nabisco in 2000 and, most recently, Groupe Danone’sLu biscuit business, Rosenfeld said the plan was to integrate “the best of both.”
She also pointed out that Kraft expects to realize at least $675 million annually in cost savings as a result of “meaningful revenue synergies over time from investments in distribution, marketing and product development” by the end of the third year of the merger.News of Cadbury’s decision to accept the offer was not well-received by the various unions representing the rank and file in the company. Citing a history of cost-cutting moves in the past as well as the debt load that Kraft will take on, the unions expressed concern that 30,000 jobs could be at risk.
Kraft’s executives responded to such concerns by saying that Kraft would maintain a strong presence in Britain and be a “net importer” of jobs.
Although both Hershey and Ferrero had initially expressed interest in Cadbury, the two companies officially removed themselves as potential buyers shortly after Cadbury’s decision to accept Kraft’s offer.
Warren Buffet, head of Berkshire Hathaway, an investor group that holds 9.4% of Kraft stock, expressed his displeasure about the acquisition, calling the merger a “bad deal.” Although Buffet indicated that he would hold onto Kraft stock, he questioned how the company would pay for the acquisition.
A Kraft spokesperson responded by saying the company would pay down debt from increased revenues as a result of the merger.
