1. Mergers & Acquisitions

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. 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. Timeline of Deal
• Kraft's Chairman and CEO Irene Rosenfeld meets Cadbury's Chairman Roger Carr offer to
buy Cadbury in a cash and share deal which valued Cadbury's 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 promptly
September
7, 2009
rejects the bid.
• Cadbury's Carr in a letter to Rosenfeld again rejects the bid saying it was an
"unappealing prospect" being absorbed into Kraft's "low growth
September
12, 2009 conglomerate business".
• 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
September
16, 2009 overpay for Cadbury.

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 Kraft
September
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 its
September
30, 2009
rejection of the Kraft bid
• Kraft's third-quarter results disappoint investors with weaker-than-
expected revenue and as it cut its 2009 sales forecast. CEO Rosenfeld
Nov 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 each
Nov 9, 2009 Cadbury share -- valued at 717p

6. Timeline of Deal (contd.)
• Both Italy's Ferrero and Hershey said separately they were reviewing
a possible bid for Cadbury but gave no assurance that either would
November
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 is
December
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 Kraft's bid
December
18, 2009 reflects Cadbury stand-alone value
• Kraft sweetens bid with 60p more cash but cuts shares on offer to
Jan 3, 2010
keep offer price unchanged

7. Timeline of Deal (fnshd.)
• Cadbury releases it final defense document, attacking Kraft's
management and revealing that it beat its own target for
January
14, 2010 operating margins in 2009
• Cadbury board recommends £12
January
18, 2010 million sale to Kraft

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. Entering
Emerging
Markets
India, China, Mexico , Brazil & South Africa are
among the strongest
emerging markets
Kraft has very little footprint in these places
apart from China
Most of its revenues come from North & South
America & Europe which have very slow growth
Cadbury is a cross-border acquisition to enter
into growth markets in Asia, Middle-East & Africa

10. Entering Overcoming
Emerging Entry
Markets Barriers
Established brands:
ITC, Pepsico etc. are already established in food & ESTD.
beverages
Kraft alone would have to spend a fortune on S&M
to enter those markets
Strong brand name of Cadbury in emerging markets
would 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. Entering Overcoming
Emerging Entry
Markets Barriers
Economies 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. Entering Overcoming Increased
Emerging Entry Market
Markets Barriers Power
Overall Size and Market Share
Joint portfolio of more than 40 confectionary
brands, each with annual sales in excess of $100
million
Created the world's 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. Problems
Inadequate Evaluation of Target:
500p in cash and 0.1874 Kraft shares for each Cadbury
share. According to Buffet which was “a pretty full price” i.e.
much higher than actual & Kraft shares undervalued
Large Debt:
 Debt of $ 9.5 billion. Recoverable within 13 years at the
then income level (3.25, 6, 10, 30 year bonds through
DB, HSBC, RBS, BNP Paribus)
Too much diversification?
 Not really
Managers Overly Focused on Acquisition?
Possibly
Too Large? Should not be a problem

14. Integration
 Kraft
 Mananged radically different from Cadbury
 How much can Kraft be expected to change its own
culture.
 Honouring Cadbury's Fair Trade credentials
 Unreliable precedents:
Closed the Terry's 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. 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. 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
Kraft's bureaucratic work structures
Orwellian feel

17. Other Aspects
 Working Relationship
Irene Rosenfeld's 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. Implications of Cultural
Change
Kraft Cadbury
Strengthened Brand Damaged Heritage
Drives 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. IT
Kraft hoped to save £430m annually, largely by integrating the companies' IT systems
Both Kraft and Cadbury rely on systems provided by SAP, one of the world leaders in
enterprise resource planning (ERP) systems
Due diligence process in any merger should include an assessment of the target company's
IT to quantify any risks to business continuity, outline the required operational and capital
expenditure for the first 12 months following the acquisition, identify the opportunities for
synergy and define the high level integration plan
Unfortunately 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 the
smaller company system and merge it into the larger one
Both Kraft and Cadbury relied on SAP giving them a slight advantage, but SAP and other
ERP systems are usually heavily customised to suit different situations, so integration was
an issue

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. 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. 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. 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. 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