To be the BEST food company in the world.
- Kraft Heinz Company's mission statement
Companies take various steps to achieve their business aims and objectives. In doing so, they can take over other firms.
A takeover occurs when one company purchases another company. It is simply an acquisition of another company.
An example of such can be the Kraft Cadbury takeover.
Introduction to Kraft and Cadbury
Kraft Foods is a division and brand of the current Kraft Heinz Company. The Kraft Heinz Company is an American company that is the third-largest food and beverage manufacturer in North America and the fifth-largest food and beverage manufacturer in the world. Kraft Foods was formed in 2015 by a merger of Kraft Foods Group and HJ Heinz Holding Corporation. At the time of the takeover, Kraft Foods was the second largest food conglomerate in the world. The company had seven brands, each generating annual revenues of more than 1 billion dollars.
Cadbury is a British multinational confectionery company. It was founded in 1824 by John Cadbury who opened a grocery shop in Birmingham, England. Among other things in the shop, there was also cocoa and hot chocolate which were prepared by the founder himself, using a pestle and mortar. Currently, Cadbury offers many chocolates and drinks such as Cadbury Eggs, Cadbury Dairy Milk chocolates, Flake, Wispa, Twirl and Eclairs chocolates, and Cadbury Bournville drinking chocolate. Cadbury is now available in more than 30 countries and its top three markets are the United States, Australia and India.
Despite its UK listing and headquarters, at the time of the Kraft bid, the company was owned 49 per cent by the USA. Moreover, only 5 per cent of its shares were owned by short term traders. Having said that, Cadbury's shareholders, including those from the United States, had a lot of impact on the company's decisions. In doing so, they were able to influence the company in a way that would not necessarily be favorable to the management and to the long-term objectives of the company.
Story of the takeover
In 2019 Kraft Foods launched a hostile bid for Cadbury.
A hostile takeover is when the acquiring company tries to takeover a target company without the approval of management.
A hostile bid is a type of bid that bidders present directly to the target company's shareholders because the management is not in favor of the deal.
However, not only was Cadbury not for sale but the company also resisted the Kraft takeover. The chairman of Cadbury, Roger Carr, put together a strong defensive advisory team that branded the 745 pence per share offer “unattractive” and said that it:
Fundamentally undervalued the company.
Moreover, the team made it clear that if Cadbury was to accept an unwanted takeover, they would have preferred almost any other confectionery company such as Nestle, Ferrero or Hershey. Lastly, the UK's business secretary, Lord Mandelson, declared that any buyer who failed to “respect” the historic confectioner would be opposed by the government.
Reasons
With such resistance, why would Kraft insist on taking Cadbury over? As it turned out almost two years later, Kraft was to be reconstructed and split into two companies: a grocery and snacks business. In doing so, Kraft needed Cadbury to provide scale for the snacks business. Therefore, Cadbury was the final acquisition that would have made it possible.
Final offer
The Cadbury team, unaware of Kraft's plans, stated that a majority of shareholders would sell at a price of roughly 830 pence a share. In January 2010, Kraft Foods made its final offer to buy Cadbury for around £11.9 billion which included an increased offer to 840 pence per share plus a special 10 pence per share dividend. 72% of Cadbury's shareholders approved the deal.
To learn more about shareholders and their voting rights, read our explanation about shareholders.
Analysis of the takeover
The Kraft Cadbury takeover had advantages and disadvantages for both companies.
Advantage
For Kraft, the takeover was the biggest cross-border acquisition in 2010 that made the company a number one dealer in confectionery. The combination of Kraft products such as Toblerone and Oreo with Dairy Milk chocolates from Cadbury would also help to save money on annual company costs of research and development, advertising, branding and procurement. Moreover, Kraft and Cadbury together would generate more sales than the two companies separately which would result in higher earnings per share. The takeover would also allow Kraft to compete with companies such as Nestle, Ferrero and Hershey. Lastly, Kraft's growth opportunities would enable access to new brands and new distribution channels.
When it comes to Cadbury, the company would take advantage of Kraft's extensive distribution network worldwide. Besides that, the takeover would expand the global reach of both companies and create highly worthwhile synergies.
Synergy is the idea that the combined performance and value of two companies is higher than that of the two companies individually. It is often the reason for mergers and acquisitions.
Disadvantages
To begin with, Kraft borrowed funds to pay the Cadbury shareholders a higher yield which worked Kraft's already high debt. To pay off its debt, Kraft was trying to reduce costs. T his alarmed unions that were already worried about the jobs of hundreds of people and whom the company did not give any formal assurance that it would protect them. Moreover, the British Government, being generally against any takeovers of British companies which typically lead to job losses, was also worried about the situation. As it turned out, their worries were completely justifiable as the company started to lay employees off. Whereas people on the top of the company and shareholders had nothing to worry about, low-level managers and employees lost their jobs. Lastly, there was no guarantee that Kraft would keep the production in the UK in the long run. In fact, Kraft kept the production in the UK but closed some of the factories in the country.
Conclusion
The case of the Kraft Cadbury takeover shows that Cadbury's shareholders were not necessarily the long term traditional owners of the target company stock. Instead, they might have been very rational hedge funds who got easily convinced by the offer price and the quick time in which the deal could have been finalized. Basically, they cared about their own money rather than the company.
Despite the high debt of Kraft after the takeover, employee layoffs and closing some of its UK factories, the deal allowed Cadbury to expand. However, a brand that was once a proud tradition of ethical British businesses was not only transformed into a global corporate but also lost its British ownership.
Currently, Cadbury does not belong to Kraft anymore. It is fully owned by Mondelēz International which is one of the world's largest snacks companies.
Kraft Cadbury Takeover - Key takeaways
- Kraft Foods is a division and brand of Kraft Heinz Company, an American food and beverage manufacturer.
- Cadbury is a British multinational confectionery company.
- The reason why Kraft needed Cadbury was to reconstruct and split into two companies: a grocery and snacks business where Cadbury would provide scale for the snacks business.
- Although Cadbury was actively resisting, it was taken over by Kraft in January 2010.
- Despite the high debt of Kraft after the takeover, employee layoffs and closing some of the UK factories, the deal allowed Cadbury to expand.
- However, a brand that was once of a proud tradition of ethical British businesses was not only transformed into a global corporate but also lost its British ownership.
Sources:
https: // www. britica.com/topic/Kraft-Foods-Inc
https://www.kraftheinzcompany.com/
https://www.mondelezinternational.com/Our-Brands/Cadbury
https://www.ft.com/content/1cb06d30-332f-11e1-a51e-00144feabdc0
https://www.marketingweek.com/kraft-completes-takeover-of-cadbury/
https://www.ukessays.com/essays/marketing/takeover-of-cadbury.php
https://mission-statement.com/kraft-heinz/
https://blog.ipleaders.in/kraft-cadbury-takeover-restructuring-and-challenges/
https://www.bloomberg.com/graphics/2019-opinion-cadbury/
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