Kraft to Take Over Cadbury… a Sweet Deal?

January 19th, 2010 • Related • Filed Under • by trisha

If brand names like Ferrero, Hershey and Kraft all make your mouth water, imagine the effect their association with the Cadbury company has had on investors over the past week.

Cadbury, the UK based chocolate giant, faced a hostile takeover bid that stretches back into the last quarter of 2009, which is an eternity in the investing world. They put up a strong resistance to the takeover proposal and several quarters rounded criticisms on the bid.

Hershey and Ferrero, two other well-known names in the chocolate arena, put forth bids when the news broke. However, those bids fell to the side on strong rumors that Kraft was in the process of sweetening the deal for the Cadbury shareholders.

Of course, as soon as the seriousness of the attempt hit home the Cadbury employees feared for their jobs. Kraft is known to have a fair amount of debt and so would be keen on cost-cutting measures, which almost always translates into job cuts.

The initial offer was roughly 17.1 billion dollars which was to be made up of a part cash and part issue of Kraft shares which valued each Cadbury share at 770 pence. This bid was rejected as outlandish and Cadbury held firm to their stance.

Kraft responded after talks with one of their major shareholders, Warren Buffet, who cautioned not to issue too many new Kraft shares to avoid driving the price down. They eventually came back with a sweetened offer of 19.6 billion dollars which valued the Cadbury shares at 850p which is a far cry from what they originally offered.

Investment analysts however think that Kraft has walked away with a steal of a deal. They are now the world’s largest chocolate conglomerate and they are primed to reap the benefits associated with this status.

Cost Savings

Because of its increased size, Kraft estimates they will be able to realize annual cost savings of $675 million. This will work wonders for the profitability of the group and investors will most likely be singing a happy tune.

Market Positioning

Kraft is also looking to take advantage of its better positioning in emerging markets because of the takeover, especially in countries like Brazil, Mexico and India where the Cadbury brand is already strong.

Will the Kraft Takeover Leave a Bitter Aftertaste?

Some may say that hostile takeover bids are never really welcomed news and while the numbers may look promising the truth about the human relations aspect could have negative effects. Some Britons are feeling a sense of loss due to the news because the Cadbury name has a long tradition of British pride that stretches from the cusp of the twentieth century.

Undoubtedly there will continue to be mixed feelings about the Kraft takeover of Cadbury but whether or not it turns out to be a sweet deal for investors is anyone’s guess.