Cadbury-Kraft’s 5 Month Battle

  • SumoMe

When two major food industries, each a household name and heritage in its own country begin talks over an acquisition of one over another, the world looks up in interest. That’s what happened, when in September 2009, when Kraft Foods, Inc, USA’s largest food and beverage corporation made a ₤10.2 billion offer to take over Britain’s confectionary giant, Cadbury.

Cadbury, which has a legacy of over 182 years in Britain, turned down the offer on the grounds that Kraft had undervalued the company. Kraft’s aim was to takeover Cadbury to form a global powerhouse in snacks and confectionery with a possible turnover of $50 billion a year. With a firm rejection from the management, Kraft appealed to the shareholders of Cadbury, offering a cash-and-shares deal of 300 pence and 0.2589 Kraft shares for every Cadbury share. This deal valued every share at 748 pence, over the then value of 568 p, a premium of 31 percent. Two weeks after this offer, the unwilling Cadbury asked the UK Takeover Panel to put a deadline on Kraft to make its final offer or withdraw for six months, The Panel gave Kraft until November 9 to make a final offer. However, the company turned hostile, lowering its offer to ₤ 9.8 billion and offering the same deal as before. Roger Carr, Chairman of Cadbury reiterated that the offer came nowhere close to the value of the company and rejected its absorption into what he termed ‘a low-growth conglomerate business model’. The news, however, caused Cadbury’s share value to drop 2 percent.

Meanwhile, speculation arose as to a possible joint bid by Hershey and Italian Ferrero which caused share prices to rise again to a high of 814 pence on  November 23.

Nestle, the largest food corporation in the world, also showed interest in a takeover.

The British public objected to the takeover of their biggest national brand by an American company, with workers all over UK and Ireland uniting with local MPs to express their concern about the deal. Fearing that the takeover would lead to layoffs, citing Kraft’s poor track record in international takeovers, the labour union ‘Unite’ started a petition to keep Cadbury within the country.

Kraft began circulation of an extensive pamphlet, directly targeting the shareholders and explaining the risks of  supporting Cadbury as a standalone company. In another war of the words, Cadbury urged its shareholders not to cheaply sell the company to Kraft and promised more benefits from independence. They were given till January 5 to vote for or against the takeover. Kraft sold its frozen pizza business to Nestle for $3.7 billion to raise funds for the takeover. Nestle withdrew any plans it had for Cadbury’s takeover.

Talks with Hershey , which was already licensed to manufacture some Cadbury’s products for a friendly tie-up to work against Kraft and give some control to Cadbury took place on January 7, by which time only 1.5 percent of its shareholders had agreed to Kraft’s deal of ₤10.5 billion. However, the management said it was open to a sensible offer. The talks with Hershey had no effect and Cadbury was forced to recommend a ₤11.9 billion takeover.

Finally, on February 2, Kraft secured 71.73 percent of Cadbury’s shares by a shareholder’s vote after giving them 840 pence per share plus 10 pence special dividend . By February 5,  it had secured 75 percent of the shares. Cadbury will be delisted  from the London Stock Exchange from March 8. Once Kraft acquires 90 percent shares, it can force the remaining shareholders to sell. The management of Cadbury has resigned. Kraft will now be the largest confectioner in the world, surpassing Mars-Wrigley.

While many shareholders and the Chief Executive of Kraft, Irene Rosenfeld are happy, a large section of the British public is not. Kraft had to borrow $7 billion to make the acquisition and there are fears the $675 million cost cutting that will follow will affect upto 45,000 workers across the world. Kraft may have opened new markets in developing economies like India, but the cost cutting may affect the quality of Cadbury products. A Cadbury factory in Bristol was shut down in February, resulting in the loss of 400 jobs. The company’s new members will not get access to the final pension scheme and contributions from employees will increase. Fears are rampant that production and decision making will shift out of UK. Cadbury also used cocoa from organic farmers and Kraft may reverse that decision. Rival Hershey may lose its licence to manufacture Cadbury products.

Warren Buffett, world renowned investor and owner of a 9.4 percent shareholding in Kraft has criticised the company for paying in excess of Cadbury’s worth and putting itself into debt following which the share prices fell 2 percent. However, the most affected seem to be the British public which mourn the loss of a brand that defined their nation.

Vrinda Manocha3

[Image courtesy: http://www2.b3ta.com/host/creative/81337/1256638497/cadburykraft.jpg]

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