The Acquisition of Cadbury
by Kraft Foods Group Inc.
Presented by
Blake Downward (CFO of Kraft Foods)
Asif Mahmud (CMO of Kraft Foods)
Contents
Who are Kraft Foods Group Inc.?
Who are Cadbury Enterprises Ltd?
The attraction
How did it all begin?
The details
Capital Budgeting
Where are we today? (Post Acquisition)
Managing the Managers!
Kraft Foods Group
Kraft Foods Group
Kraft is a US company which was founded in 1923
2nd largest food company in the world with
presence in over 150 countries
11 established brands each bringing in $1billion
globally in revenue
Established in developed markets; North America
and Europe
Highly competitive market with low margins
Small presence in emerging markets
Famous for Oreo, Chips Ahoy! and Toblerone
Kraft Foods Group
Cadbury Enterprises Ltd
Chinese Brand Name is 吉百利 (Jíbǎilì)
Confectionary Company (糕饼) (Gāobǐng)
Founded in 1824 by John Cadbury
70,000 employees globally prior to the acquisition
Revenue in excess of £5 billion
Export over 200 products to 30 countries worldwide
Cadbury’s subsidiary based in Guangzhou, China
Chocolate market is worth over £10 trillion annually
Market growth is 7.4% and Cadbury’s are growing at 8.6%
Top 3 competitors are Hershey’s, Mars and Nestle
Famous for Dairy Milk Chocolate, Crème Egg and Roses
Why Purchase Cadbury?
Established brand with presence in existing and emerging
markets (40% of total sales)
Allows Kraft to diversify into these new markets
Chocolate & chewing gum are high margin products (14%)
Enables Kraft to become the largest confectioner (14.8%)
Confectionary is a resilient growing market
Iconic brands – Cadbury, Trident, Halls & Dentyne
Access to shelf space
The UK is politically and economically stable
Double taxation treaty
Long term investment
Why Purchase Cadbury?
Why Purchase Cadbury?
Why Purchase Cadbury?
How did it all begin?
28th of August 2009 – Initial approach of 755p per share is
rejected
7th of September – Our approach is made public but bid
value has decreased
30th of September – Deadline for bid set to the 9/11/2009
by the UK Takeover Panel
4th of December – Official bid document presented to
Cadbury Shareholders
5th of January 2010 – Offer increased
On the 19th of January 2010, Kraft complete takeover of
Cadbury
The Details
Currency Conditions – effect of the exchange rates
Cash-flows / Hedging
USD/GBP monthly std. dev. 2.21%
FTSE/NASDAQ corr. 0.6864
Dividends to parent
The Details
Currency Conditions – effect of the exchange rates
Cash-flows / Hedging
The Details
Initial bid (28% premium)
Final bid (44% premium)
$19.6 billion USD (13 x of Cadbury’s 2009 EBITDA)
Funding the acquisition
The Details
Cash (GBP) # Kraft Shares Kraft Price (USD) Exchange Rate Total (GBP) Cadbury Price (GBP) Premium
7/09/2009
3.00
0.2589
28.1
0.611
7.44
5.81
28%
19/01/2010
5.10
0.1874
29.58
0.6109
8.48
8.37
1%
The Details
Funding the acquisition
Kraft financed this purchase with a combination of debt
and equity.
New share issue – Kraft issued 265 million shares as part of
the payment (15% increase in number of shares)
Sold pizza business to Nestle
Secured $9.2 billion (USD) debt finance from Citigroup and
Deutsche Bank
50% debt finance
Capital Budgeting
Cost Savings through economies of scale
Cadbury’s investment into R&D and new Technology
Less barriers to entry (Shelf Space)
Opportunity to increase margins
IT cost savings of $430 million annually
Potential cost savings of $675 million ($300million in
procurement, manufacturing & logistics, $250million in
general & administrative, $100million in marketing & sales
Reduction in number of suppliers to increase efficiency
Potential to reduce cash conversion cycle by 5 days
Reduce overheads as % of revenue from 14% to 12.5%
Post Acquisition
Managing the Managers
45 Senior managers from Cadbury successfully integrated
into Kraft
Former Cadbury executives have taken 1/3rd of Kraft’s top 50
positions across the company
Emerging markets – taking advantage of the talent
Staff retention and integration is always going to be a
challenge
Workshops to encourage cooperation and knowledge transfer
Questions?