INDIAN INSTITUTE OF FOREIGN TRADE, 2012

The Kraft Cadbury Deal Analysis

Mergers & Acquisitions

Dipti Kumar 15A Shriya Dhar 44A Mahima Jain 27B Supriti Aggarwal 48C Swati Khuranna 46C

Contents
Introduction ............................................................................................................................................ 3 Industry Trends ....................................................................................................................................... 3 Overview of Kraft foods .......................................................................................................................... 3 History ................................................................................................................................................. 4 Overview of Cadbury .............................................................................................................................. 5 History ................................................................................................................................................. 5 Industry Value Chain ............................................................................................................................... 7 Kraft Foods value chain pre merger ........................................................................................................ 8 Details of the deal ................................................................................................................................... 9 Kraft and Cadbury SWOT Analysis ........................................................................................................ 11 Strategic Rationale for the deal ............................................................................................................ 11 KRAFT after Integration ........................................................................................................................ 13 Expected outcomes........................................................................................................................... 13 Business Performance....................................................................................................................... 13 CORPORATE STRUCTURE AND INTEGRATION................................................................................... 14 Problems in the Integration .................................................................................................................. 14 Kraft Cadbury Deal valuation ................................................................................................................ 14 Further details of the Final Offer ...................................................................................................... 15 Financing the cash consideration ..................................................................................................... 16 Efforts to smoothen the Acquisition ..................................................................................................... 17 Post merger Events ............................................................................................................................... 18 Lesson from Krafts Cadbury takeover .................................................................................................. 19 Analysis and opinion ............................................................................................................................. 19 Appendix ............................................................................................................................................... 22 References ............................................................................................................................................ 24

Introduction
In this Mergers & Acquisition project we are covering the Krafts acquisition of Cadbury i n 2010. This multibillion dollar deal started negotiation on a rather hostile note and but after merger went on to form second largest snack and confectionary conglomerate. The public reaction to the British icon losing its independence of about two centur ies wasnt very encouraging. Kraft has had a past of experimental mergers and acquisitions, ranging from Duracell, Tupperware and even today has everything from coffee, beverages, cheese in its portfolio; while Cadbury has been more or less focused on its chosen path, except for drinks market which it eventually dropped. American Kraft was aggressive and business-minded, while British Cadbury had a heritage and value so this acquisition has challenges of high integration cost.

Industry Trends
The major trends in the food and beverages industry of US that provides growth opportunities to the companies are (U.S. Food and Beverage Industry Growth Predicted, Despite Challenges, 2006): Greater focus on innovations and new product developments. Shift in consumption pattern of the consumers. The consumers are in look out for quality products with a combination of convenience and value. Increased awareness of health and ethnic foods. Growing opportunities in foreign market. With increasing focus on water usage and energy efficiency, sustaining the position in the market amidst the competition has become important.

Overview of Kraft foods

KRAFT Foods is an American multinational confectionary, food and beverage conglomerate, headquartered in Northfield, Illinois, Chicago (and has a European headquarter in Glattpark, Opfikon, Switzerland). Kraft is listed in New York Stock Exchange. Krafts origins are in National Dairy Products, formed in 1923, which eventually succeeded in dairy industry as

Krafts Cheese Company. Krafts Cheese company soon recognized that its name is limiting the scope of its operations. After several change of gears in its business direction and ownerships, Krafts finally positioned itself with General Foods as a packaged food and snacks company with brands like Tang, Alpen, Gold, Oreo, Ritz, Kenco etc under its umbrella.

Type Public (NYSE: KFT) Founded Chicago, Illinois (1903) Headquarters Northfield, Illinois Key people Irene Rosenfeld, Chief Executive Officer Industry Food Processing Finance Revenue US$42.2 billion (2008) Operating income US$3.8 billion (2008) Net income US$2.9 billion (2008) Employees 98,000 (2008) Website www.kraftfoodscompany.com

History
The firm today known as Kraft Foods was formed on 10 December 1923 by Thomas H. McInnerney with financing provided by Goldman Sachs, Lehman Brothers and Tobey & Kirk. The firm was initially set up to execute on a roll up strategy in the then fragmented United States ice cream industry. Through acquisitions it expanded into a full range of dairy products. By 1930, eight years after it was founded, it was the largest dairy company in the United States and the world, exceeding Borden. McInnerney operated the Hydrox Corporation, an ice cream company located in Chicago, Illinois. In 1923 he went to Wall Street to convince investment bankers there to finance his scheme for consolidating the United States ice cream industry. He initially found "hard sledding" with one banker saying the dairy industry "lacked dignity." He persevered and convinced a consortium including Goldman Sachs and Lehman Brothers to finance a roll-up strategy. As a result of his efforts, National Dairy Products Corporation was formed in 1923 in a merger of McInnerney's Hydrox with Rieck McJunkin Dairy Co of Pittsburgh, Pennsylvania the resulting firm was then listed on the New York Stock Exchange with the offer of 125,000 shares having been oversubscribed. The firm grew quickly through a large number of acquisitions. As is typical in

a roll-up strategy, acquisitions were primarily for stock rather than cash. Examples of firms acquired include:

Overview of Cadbury
CADBURY was a British company that started its simple operations in early 1800s by selling tea, coffee and drinking chocolate. It entered solid milk chocolate in 1897. On its merger with drinks company Schweppes in 1969 it became Cadbury Schweppes. In 2008, the business was split into confectionary business under Cadbury and US beverage unit as Dr. Pepper Snapple Group so that each gets the deserved focus. TYPE: subsidiary of Kraft foods INDUSTRY: confectionery FOUNDED: 1824 REVENUE: $50 billion PARENT COUNTRY: united Kingdom

History
Cadbury, worlds second largest confectionery company had made a long journey since it was started in 1824 by John Cadbury. The founder had started the company to sell coffee, tea, drinking chocolate and cocoa in a small shop at Birmingham as an alternative to alcohol. Due to sale of high quality products, the business expanded and John Cadbury

started manufacturing cocoa and chocolate in1831 at a rented warehouse. Subsequently the company was selling 11 kinds of cocoa and 16 kinds of drinking chocolate in 1842 and further became one of the manufacturers of chocolate and cocoa to Queen Victoria in 1854. John Cadburys sons took over the business and launched a product Cadbury Cocoa Essence during1860s. This product turned to be a major hit for Cadbury and it served as a basis for their chocolate business. In 1873 the company stopped their tea business to focus on the chocolate business which was very successful. Cadbury produced different varieties of chocolates and with their first export order from Australia in 1881 the company prospered. In 1897, the first milk chocolate was produced. In 1905, one of the Cadburys popular products, Dairy Milk was launched.

In 1919, Cadbury merged with JS Fry & Sons, a market leader in chocolate, and integrated brands such as Fry's Chocolate Cream and Fry's Turkish Delight which had been in existence for more than 90 years. During this period, the other brands that pushed Cadbury to the premier position in chocolate manufacturing were Cadburys Milk Tray and Roses. As Cadbury started to prosper in the overseas market, the chocolate

manufacturingprocess was interrupted during the Second World War. Chocolate was thenco nsidered important for the armed forces and chocolate manufacturing was brought under the control of the government. Later in 1949 rationing of chocolate ended andthe normal production process was started. Cadbury resumed its operations,improvised productions with new technologies and launched new products. Over the years, Cadbury expanded rapidly and in 1969, it merged with Schweppes to foray into the beverages market under the name Cadbury Schweppes Plc.

The Cadbury Schweppes became a leader in the confectionery and beverages market both in UK and abroad. The company acquired chewing gum brand Trident, Sunkist, Canada Dry and Typhoo Tea. By this time, the company had manufacturing operations worldwide and Cadbury had become a household name in many countries. Nearly after four decades, in 2007, Cadbury Schweppes wanted to separate its confectionery and beverage business. The company was demerged in May 2008 and Cadbury Plc was the new company that looked after the confectionery business and Dr Pepper Snapple Group, Inc. (DPS) focused upon Americas Beverages business.

Post demerger the company had made a substantial growth and the group had revenue of 5,384 million in 2008. With over 150 become years of its presence in the

confectionery market, Cadbury had

a global company with leadership position

in 20 of the worlds top 50 emerging confectionery markets. As of 2008, the company with a market share of 10.5% ranked No. 2 in the confectionery market. With respect to the chocolate market, Cadburys ranked No. 5 with a market share of 7.5% in 2008.Cadburys major competitors were Mars- Wrigley , Nestle, Hershey and Kraft Foods. In 2008, Cadbury was the leader in the gum market and its brand Trident was the largest gum brand in the world. Another factor that placed Cadbury in the leading position was the candy business with leading candy brands such as Halls, Maynards and Cadbury Eclairs . A major advantage for Cadbury was its presence in the emerging markets. In 2008, it was reported that emerging markets accounted for onethird of the confectionery revenue and contributed 60% of revenue growth. The company expected high growth rates in the emerging markets and had planned to focus more on these markets.

Industry Value Chain

Raw material procurement transportation processing quality assurance and certification marketing and distribution

1. Raw material procurement : Agricultural inputs such as cocoa and wheat are farmed using primarily two models farm corporations and contract farming. Milk and milk products are procured from dairies. Commercial seeds and products for crop protection are procured from specific companies

2. Transportation Raw materials are transported to the food processing company, with the help of companies providing solutions for transportation and effective supply chain management.

3. Processing Raw materials are processed into food products by processed food manufacturers.

4. Quality Assurance and Certification Manufactured food is checked for quality and safety and processed food products need to adhere to quality standards set by the government and private bodies. Major standard-setting organizations for food products are European Food Safety Authority (EFSA), US Food and Drug Administration (FDA), Bureau of Indian Standards (BIS)

5. Marketing and distribution The processed food undergoes aggressive brand building and is sold to consumers through retailers. Food items are also served to consumers through restaurants / food service companies.

Kraft Foods value chain pre merger

Details of the deal

The following are the key events in Krafts takeover battle for Cadbury:

Aug28, 2009:- Krafts chairman and CEO Irene Rosenfeld meets Cadburys chairman Roger Carr to outline a takeover deal in cash and shares which valued Cadburys shares at 755 pence each, but Carr dismissed the approach. The Kraft bid was worth300 P in cash and 0.2589 new Kraft shares for each Cadbury share.

Sept7:-Krafts goes public with the bid, but by this time the value of the same offer had slipped to 745P per Cadbury share, or10.2 billion Pounds. Cadbury promptly rejects the bid.

Sept.12:- Cadburys Carr in a cotter to Rosenfeld again rejects the bid saying it was an Unappealing prospect being absorbed into Krafts Low growth conglomerate business

Sept.16:- Warren Buffett, the worlds second richest man and a leading share holder in Kraft with a 9.4percent stake, warned the U.S food group not to overpay for Cadbury.

Sept.21:- Cadbury contests 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 to came up with a formal bid.

Sept.23:- Cadbury CEO Todd Stitzer is reported at a Bank of America /Merrill/Lynch conference as saying he saw some potential benefit from a Kraft deal and discussed valuation with investors, according to a note from the conference.

Sept.30:- UK Takeover Panel rules that Kraft has until 1700GMT on Nov 9 to make a formal offer for Cadbury or walk away for six months. Cadbury reiterates its rejection of the Kraft bid.

Oct.21:- Cadbury posts upbeat third-quarter trading with underlying sales up 7 percent as in t raise its 2009 target for sales and profit margin growth. The shares fail to react as a counter bidder for Kraft is seen increasingly unlikely.

Oct.22:- Nestle and Hershey report third quarter results but neither mention a Speculated joint bid for Cadbury with Nestls focus on increasing its share bug back.

Nov.3:- Krafts third quarter results disappoint investors with weaker -than-expected revenue and as it cut its 2009 sales forecast CEO Rosenfeld says she will not overpay for Cadbury.

Nov.9:- Kraft formalizes its bid at the same terms for Cadbury as the original approach 300P in cash and 0.2589 new Kraft share for each Cadbury share- valued at 717P.

Nov.18:- Both Italys Ferren and Hershey said separately they were reviewing a possible bid for Cadbury but gave no assurance that either would make an offer.

Nov.23:-Cadbury shares hits all time high of 819-1/2 pence on speculation of a battle between Kraft and rivals for the British Chocolate maker.

Dec.4:- Kraft posts its offer document to Cadbury share holders starting off a two month fight for the British group under UK takeover rules. Kraft says its bid in new worth 713 pence a share or 10.1 billion Pounds.

Dec.14:- Cadbury issues its official defense document promising bigger dividends and strong growth as Cadbury reminds its shareholders that Hershey and Ferrero may bid.

Dec.18:-Cadbury CEO Todd Stitzer tells Routers in an interview that a significant number of its major shareholders do not believe Krafts bid reflects Cadbury Standalone value.

Jan.5:-Kraft sweetens bid with 60P more cash but cuts shares on offer to keep offer price unchanged.

Jan.6:-Kraft says it has a 1.52 percent take up for its offer for Cadbury at its first closing date for the bid.

Jan.12:-Cadbury gives its final official defense against Kraft bid reporting robust trading and rejecting the bid on valuation. Ferrero pulls out; say sources close to the deal.

Jan.14:-Cadbury says last words in its defense as media reports say that Hershey is looking at mounting a solo bid, But many analysis doubt whether Hershey can come up finance.

Jan.19:-Kraft food agrees a deal to buy Cadbury on Tuesday for around 11.9 billion Pounds ($19.55 billion).

Kraft and Cadbury SWOT Analysis

Strategic Rationale for the deal

Focus on growth categories

Kraft wanted to be the leader in snack, confectionery and quick meals category. Also, it wanted to exit lower growth, lower margin businesses and reinvigorate high cash flow businesses to fund growth. This acquisition would also lead to integrate worlds famous brands such as Krafts Oreo cookies, Velveeta cheese and Cadburys chocolate bars under one roof. The acquisition was expected to help both the companies to compete effectively against the rivals. Renowned industry experts also reasoned that a deal between Kraft and Cadbury would create a global food giant with about $50 billion in annual revenues, and would boost Krafts growth prospect by giving it access to new brands specially in the confectionaries segment.

Expand footprint in developing markets

Kraft would benefit from the merger and it would help increase its geographical footprint specially in developing markets like India, Mexico, Brazil, China and Russia. Kraft Foods expected to increase their market share in developing economies from 20% PreCadbury acquisition to 26% post acquisition. The chairman of Kraft Foods, Irene Rosenfeld had opined that this acquisition would leverage the company to worlds No.2 food company and No.1Company in North America. The company had also aimed to capture the best of both the companies and maintain business momentum. By acquiring Cadbury, which has got a market share of 70% in Indian chocolate market and with 1.2 million retail outlets in 2009, Kraft would get a solid presence in the second fastest growing economy where large sections of Indians have turned towards processed foods including rural population. To offer products at competitive price, Kraft would tie up with local manufacturers and sell them under the Krafts brand. Analysts had long supported Krafts rationale for the merger, which would add Trident gum and Dairy Milk chocolates to Krafts brands and help the American food company expand into faster growing countries like India, South Africa and Mexico.

More value to shareholders

Kraft believed that the merger could target long-term organic growth in excess of 5% and sustainable long-term EPS growth of 9 to 11% whereas Kraft targets long-term organic revenue growth of 4% and EPS growth of 7 to 9% on a standalone basis. The higher long-

term growth rates in revenues and bottom lines will be driven by revenue synergies and $625 million identified annual cost savings.

KRAFT after Integration

On 2 February 2010, Kraft Foods acquired control of Cadbury plc through a tender process that received the unanimous approval of the Cadbury Board of Directors. Kraft committed before merger that it would not change Cadburys brand that they would continue to make Cadbury Dairy Milk and other products in the UK and continue to manage brands from the UK; that they would honour Cadburys previous commitments to staff at the Somerdale factory; that they would make no further compulsory redundancies of manufacturing employees in the UK for at least two years; that they would honour Cadburys pension arrangements; and that they would maintain Cadburys existing commitments to Fairtrade, local community investment and sponsorship of London 2012.

Expected outcomes
Kraft Foods Cadbury Combined

Kraft Foods Number of product markets in which present: Number of countries in which present Number of product & country value market shares quoted Company sales turnover (Euro billions at market prices Overall share of the total West European food & drink market Overall share regarding the 44 products in which they are present 6.28% 3.44% 7.05% 41 16 225 14.6 1.30% Cadbury 17 16 55 5.3 0.47% Combined 44 16 252 19.9 1.77%

Business Performance
The combined business performed well despite a difficult economic climate. In the UK for example, Cadburys Easter sales were up 13% over 2009, and we have sold more than 300 million bars of Fairtrade Cadbury Dairy Milk since certification in 2009. Post merger there was a 13% rise in YoY revenue which suggests the synergy of the deal in action and

integration plan. Approximately 90% of the income rise is contributed by Cadbury division which justifies Krafts judgment for geographical diversification of poor American market. There was a 34.1% increase in European revenues.

CORPORATE STRUCTURE AND INTEGRATION

Kraft Foods has operated in the UK and Ireland for more than 85 years. Prior to our merger with Cadbury, Kraft Foods employed around 1,500 people in the UK; that number has now grown to nearly 7,000 people in the UK and Ireland, including 5,000 people in manufacturing across six sites in the UK and three in Ireland. The integration of the Kraft Foods and Cadbury businesses is proceeding according to plan. Kraft has retained a great deal (ie the majority) of the talent from the Cadbury workforce approximately one third of Krafts top 400 executives today are originally from the Cadbury team.

Problems in the Integration

Many employees left the merged company citing a clash of cultures and an inability to deal with Krafts heavy hand on the operations. Senior officials involved in the integration process say they are concerned that rising complexity in the integrated operation will impact "on-the-ground readiness". They add that before Kraft took over the reins Cadbury was nimble-footed, taking pricing and promotional decisions on the ground without having to wait for official approvals from the top brass. Also, approvals for marketing and advertising budgets at Cadbury would be cleared swiftly within a few days; now they come after a month. "Earlier, it would be quick decisions, but today the number of layers people have to go through for approvals is frustrating," says a person familiar with the development. Cadbury managers are finding it difficult to reconcile with an organisation that's suddenly become officious and overbearing. Evidence of bureaucracy exists right at the top. In recent months Tony Fernandez, who had responsibility for the supply chain, has left; Jim Chambers, head of US snacks and confectionery, left in July 2011; and Nick Canney, UK grocery sales director, left in May, 2011.

Kraft Cadbury Deal valuation

Investment Banks Involved:

Kraft was advised by Lazard, Citi, Deutsche Bank and Centerview Partners, and Cadbury by Goldman Sachs, Morgan Stanley and UBS.

Recommended Final Offer terms Under the terms of the Final Offer, Cadbury Security holders were entitled to receive:

For each Cadbury Share 500 pence in cash and 0.1874 New Kraft Foods Shares For each Cadbury ADS 2,000 pence in cash and 0.7496 New Kraft Foods Shares Representing, in aggregate, 840 pence per Cadbury Share and GBP 33.60 per Cadbury ADS. In addition, Cadbury Shareholders will be entitled to receive 10 pence per Cadbury share byway of a Special Dividend following the date on which the Final Offer becomes or is declared unconditional.

The terms of the Final Offer reflect the strength of Cadbury's business, its brands and the future potential for growth through the combination of Kraft Foods and Cadbury. Kraft Foods believes that the Final Offer represents a compelling opportunity for Cadbury Security holders, providing the ability to receive approximately 60 per cent. Of their consideration in cash and long-term value creation potential through a continued shareholding in the Combined Group. The Final Offer represents an attractive multiple of 13.0 times Cadbury's underlying 2009 EBITDA. Kraft Foods believes a combination with Cadbury will provide the potential for meaningful cost savings and revenue synergies from which Cadbury Security holders will benefits.

Further details of the Final Offer

Kraft Foods also announces that it reserves the right to, and intends to, reduce the number of acceptances required to fulfil the Acceptance Condition from 90 per cent to 50 per cent plus one Cadbury Share on or after 26 January 2010. The Final Offer does not require the approval of Kraft Foods Shareholders. Accordingly, the condition relating to such approval, as set out in the Original Offer Documents, is treated as satisfied for the purposes of the Final Offer. Full acceptance of the Final Offer will result in

the issue of 265 million New Kraft Foods Shares, representing approximately 18 per cent. of the existing issued share capital and 15 per cent of the enlarged issued share capital of Kraft Foods. Kraft Foods announces that all of the Conditions to its recommended Final Offer have been satisfied or waived and, accordingly, the Offer is wholly unconditional. The Final Offer will remain open until further notice and at least 14 days' notice will be given if Kraft Foods decides to close the Final Offer. Cadbury Security holders who have not yet accepted the Offer are encouraged to do so without delay.

Financing the cash consideration

Kraft Foods is providing the cash consideration payable by it under the Final Offer from its own resources, funds available from an amended bridge facility that has been arranged by a syndicate of banks and/or proceeds from alternative financing sources. A summary of the amended bridge facility will be included in the Final Offer Documents. Lazard & Co., Limited, Center view Partners UK LLP, Citigroup Global Markets Limited and Deutsche Bank AG, London Branch are satisfied that sufficient resources are available to Kraft Foods to satisfy in full the cash consideration payable by it as a result of full acceptance of the Final Offer. Kraft management branded the proposed acquisition as the companys strategic move to build a global powerhouse in snacks, confectionery, and quick meals. Specifically, Kraft believes combining KFT&CBY can be justified by the following value propositions:1. The combined company could target long-term organic revenue growth in excess of 5% and sustainable long-term EPS growth of 9 to 11%, whereas Kraft targets long-term organic revenue growth of 4% and EPS growth of 7 to 9% on a standalone basis.2. The higher longterm growth rates in revenues and bottom lines will be driven by revenue synergies and $625 million identified annual cost savings.3.

Cadbury is highly complementary to Krafts geographical footprint and will increase developing markets contribution to Krafts net revenue from about 20% to about 25%.Kraft management has been banging the familiar synergy/strategy drum hard regarding the significance of the acquisition, and claims itself a disciplined buyer. While increasing exposure to developing markets does sound appealing and increasing top line growth by 1% on a large revenue base is worthy of applause, we are not sure those promises justify the

price tag. Based on the proposed price of 745 pence per ordinary share or approximately $50 per ADR, CBY needs to deliver top line growth of 10% and EBITDA margins of 27% each year from 2010 to 2014 to justify the purchase price. Historically, CBYs organic top line growth has been in the range of 4-6% and its EBITDA margins have declined from 22% in 2004 (peak) to 15% in 2008 (trough). It doesnt take a brain surgeon to conclude, it will be very hard for CBY to achieve those lofty operational assumptions in the future to deserve the purchase price. If we boldly assume all the projected $625 million annual savings will come from Cadbury and be realized, CBYs standalone EBITDA margin will increase by approximately 8%, still falling short of the implied27% margin, based on its profitability track record from 2006 to 2008 (17%, 16%, and 15% respectively each year). In other words, even if the annual cost savings assumptions are realized, it is likely that Kraft is still overpaying for the projected cash flows CBY can bring to the table. Needless to say, as with many deals spurred by enthusiastic I-Banker cheerleaders, Kraft may overestimate its ability to achieve the operational excellence required to justify its own assumptions of the transaction. On a standalone basis, if Kraft is able to deliver annualized top line growth of 4%, grow EPS at the high end of its targeted 7-9% range, and achieve higher asset efficiency via productivity gains as management has been promising, its shares could be worth as much as $32, rather attractive relative to their current trading levels. It seems logical for us to suggest that Kraft should focus on improving its existing operations to maximize shareholder value, rather than overpaying for Cadbury to achieve non-substantial incremental growth. The market seems to agree with us as well, given since the announcement KFT has under-performed the S&P 500 by nearly 8%. In addition, Kraft will likely use $8 billion new debt to finance about half of the purchase, increasing its leverage to a higher level amid continuous economic uncertainties. While we appreciate KFT managements confidence in the credit

Efforts to smoothen the Acquisition

Strong focus on Post Merger Integration plans especially among employees due to initial bitter batter in the corporate communications Ensure key talent is retained due to the weak relationships among the management and the stakeholder warnings such as Warren Buffets Debt loaded on Kraft foods due to the merger makes workforce optimisation imminent for the success of the deal. Optimal timing of this exercise is crucial

Communication synchronization - Somerdale factory event : Kraft Foods announced in December 2010 to move Cadbury's Headquarters and transfer Cadbury's to holding-company based in Switzerland in an attempt to avoid paying millions of pounds of tax to the UK Government

Distribution has also benefited. Ms Rosenfeld notes that in Mexico, the number of outlets for Oreos increased from 100,000 to 300,000 overnight. In Brazil, distribution points doubled.

Post merger Events

Despite the Cadbury takeover helping to boost sales by 30%, Kraft's net profit for the fourth quarter fell 24% to $540m due to costs associated with integrating the UK business after the acquisition. Kraft suffered from one-time $1.3billion of implementation costs to achieve just $675 million in recurring annual cost synergies by the end of 2012

Feb 2010: Cadbury employees the Chairman Roger Carr, chief executive Todd Stitzer and chief financial officer Andrew Bonfield all announced their resignations.

Mar 2010: Kraft sells North American frozen pizza business to Nestle for $3.7 billion.

June 2010: the Polish division, Cadbury-Wedel, was sold to Lotte of Korea

Mar 2011: Kraft sold The Somerdale Factory, a historic Cadbury factory causing national outrage in Britain and proving that their fears of job loss was real as the production was outsourced to Poland

2011-12: On the face of poor performance, Kraft is mulling over a proposed split into two companies one would remain Kraft and focus on North American Food Business, and the other with proposed name Mondelez International would focus on international snack business Clearly an indication that Kraft now wants to focus instead of expanding.

Apr 2012: Kraft Foods Inc. announced that it had filed a Form 10 Registration Statement to the SEC to split the company into two companies to serve the "North American grocery business". Cadbury to become part of Mondelez International.

May 2012: In an interview with Daily Mail, UK it was published Cadbury heiress, Felicity Loudon, has sold her 30million mansion to fund a new rival chocolate firm after her family company was sold to American 'predators' Kraft.

Aug 2012: Kraft plans to sell its stake in Back to Nature food brand to U.S. private equity firm Brynwood Partners for an undisclosed amount.

Lesson from Krafts Cadbury takeover

The Keynsham plant near Bristol will close, despite the fact that Kraft promised to keep it open (that was actually a bit weird, as Cadbury itself had announced that Keynsham would be closed at some stage in the future).And the fear, of course, as much in the mind of Peter Mandelson as in the minds of all Cadburys workers, is that this is just the first of many cuts that will be broughtforward during the next few years. Apart from the odd sardonic chuckle as the process unfolded (with that archglobaliser Mandelson shedding a few crocodile tears at another great British company being gobbled up by predators like Kraft or Warren Buffet (who owns about 9% of Kraft) complaining that its a really bad deal for Kraft shareholders, however good a deal it might be for Cadbury shareholders),its been too bloody miserable. The optimists would have curmudgeons like me cheer up a little. They point to the pledges made by Kraft to stick by Cadburys ethical and Fair-

Analysis and opinion

Cadbury has deep roots in British history Cadbury brothers being Quaker Christians started selling tea, coffee and drinking chocolate to provide an alternative to alcohol. They were later issued Royal Warrant to serve chocolate to Queen Victoria. It company was passed on to the Cadbury sons. Dairy Milk was launched in 1905 and it became best seller by 1913.

Fruit & Nuts was born in 1928. Commercial set-up was at Bournville, near Birmingham, where the group still has a chocolate factory. It was the brand every British was proud of, and seeing it being sold to a multinational plastic cheese company was not a great site for many. Kraft, an American company, has its roots in snacks business, and it has also been associated with Dairy industry, batteries, plastic containers (Duracell, Tupperware - through Dart merger).

The acquisition formed world second largest conglomerate, after Mars. Kraft was aggressive and very determined to acquire Cadbury to expand its portfolio and market reach, achieve cost savings. Cadbury became even more attractive by buying the chewing gum brands Trident and Stride, as that served Krafts purpose of portfolio expansion well . Kraft paid $19 billion, while its initial offer was mere $16.3 billion. The deal surely enhanced Krafts portfolio to a higher growth segment. Cadbury also benefitted from improved supply chain but it lost on iconic stature it had in British Empire. But the deal was certainly expensive for Kraft, and the synergies expected didnt pay out as much. There were fallouts in terms of integration costs, and Kraft had to tough business decisions which further displeased Unions and British public. Although Kraft stock value regained its value, the profits and cost savings that Kraft expected from this expensive deal hasnt yet paid off.

Recent news of Kraft planning to split to optimize its focus adds to the opinion that the debt-powered acquisition hasnt helped Kraft. Cadbury heiress is planning t o start her own confectionary to challenge American acquisition of her ancestral and British Cadbury. Whether she starts one or not, such news continue to show the acquisition in bad light which eventually loses customer and stakeholder faith.

Kraft-Cadbury was certainly a deal done with strategic and financial due diligence, but human resource integration costs and other negativities like public reaction were not well accounted for. The British public, and Government interest, or rather disappointment, from this deal was very evident. The lack of trust on Krafts long term plans and fears of job cuts due to increased debt pressure on Kraft also added to public apprehensions, and which later turned out to be true. Krafts varied industry exposures, compared to Cadburys focused business approach didnt go well. With Krafts plans to split, the future of successful and

iconic Cadbury is uncertain and the fear remains that under Kraft, Cadbury would also lose its original focus and business strength.

Appendix
Brand Portfolio

Geographical Spread

Kraft Stock Performance

ABL: Associated British Foods DJI: Dow Jones IXIC: NASDAQ GSPC: S&P 500

References
Europa: The EU Information Website
http://ec.europa.eu/competition/mergers/cases/decisions/m5644_20100106_20212_en.pdf

ACCA, Global Body for Professional Accountants:

http://www2.accaglobal.com/documents/cadburycs.pdf

UK Parliament Publications
http://www.publications.parliament.uk/pa/cm200910/cmselect/cmbis/234/234.pdf

FFT International Food for Thought Market Reports

http://www.fft-geneva.com/docs/20091124_Kraft_Cadberry_report_description.pdf

Tilson Funds
http://www.tilsonfunds.com/Kraft.pdf

The University of Notre Dame Repository

http://business.nd.edu/uploadedfiles/Academic_Centers/Fanning_Center_for_Business_Com munication/Cases/Do_Not_Copy/KraftFoodsandCadburyDNC.PDF

Dexia Asset Management

https://www.dexia-am.com/NR/rdonlyres/0C866F9F-C84F-4BDA-A9087A74A207EDB2/0/CBRY_KFTSpecial_Report.pdf

The Financial Times

http://www.ft.com/cms/s/0/1cb06d30-332f-11e1-a51e-00144feabdc0.html#axzz23pcaHXZL

The Economist http://www.economist.com/node/15323916 The Economic Times http://articles.economictimes.indiatimes.com/2011-02-23/news/28625861_1_cadburykraft-cadbury-india-sanjay-khosla