Cadbury and Kraft

1. According to the case material, briefly describe the competitive landscape change in the confectionary industry before 2009. Do you think the confectionary industry was attractive at that time? [Hint: use the 5-forces model to guide your answer]
   Threat of new entrants
   Bargaining power of buyers
   Threat of substitute products or services
   Bargaining power of suppliers
   Rivalry among existing competitors
2. Briefly describe the development of this M&A deal between Cadbury and Kraft.
   In January 2010, the board of directors of Cadbury finally agreed to accept the offer from Kraft, the world's second largest food company, and Kraft, the world's second largest food company, finally joined Cadbury, the British confectionery giant. The $19 billion deal has been approved by Cadbury's board of directors, ending more than four months of bargaining between the two sides. After the marriage, the new company will have more than 40 candy brands worldwide, which is large enough to compete with the Mars-Wrigley Chamber, and a new candy empire will be born soon. The combination of these two food companies will change the global candy market. In September 2009, Kraft announced its intention to buy Cadbury for $16.7 billion, which Cadbury rejected severely. Over the next four months, Kraft repeatedly showed good intentions, but was repeatedly rejected. In January this year, the four-month merger and acquisition war ended. In the meantime, there are not a few enterprises that send "olive branch" to Cadbury. Nestle, Hershey and Ferrero were all "scandal" bidders. Cadbury's price has risen all the way, with a final offer of $19.5 billion.
3. Who will benefit from the takeover? Explain the divergence of interest for different stakeholder groups. List at least 4 stakeholders.
4. In 2009 Kraft offered to buy Cadbury at USD 16.7 billion.
   a. What was the response from Cadbury’s board regarding Kraft’s initial offer?
   Kraft’s offer was emphatically rejected by Cadbury’s borad, led by Roger Carr. They call the offercderisory and board claimed that Kraft was attempting to buy Cadbury on the cheap.
   b. Why did the board of Cadbury make such response?
   Because the board think Cadbury is much better than such price and Kraft is undervalued it. Accoridng to the analysts, Kraft significantly undervalued Cadbury as it value Cadbury at less than 15 times EBITDA when Cadbury deserved more than 19.5 times EBITDA. And also it is their strategy to get as much value as possible from Kraft. Cadbury also think Kraft’s offer is fundamentally undervalued and made no strategic or financial sense.
   c. Do you agree with the board’s decision and why?
   Yes, I do. Because first, M&A is a huge thing for Kraft, it will not walk away easily just like what Simon revealed in the published article. So it increased Cadbury bargaining power to negotiate the price. Second, Cadbury did have bright future even on its own. It had market share of 10.1 percent of global confectionery market with more than 1% higher than closest competitor and it’s revenue in 2008 was a whopping 5.384 billion with a profit of 366 million and its sales have less reliant on holiday season sales. Third, Cadbury is valued much more than the initial offer by the market. Analysts believe Cadbury deserved more than 19.5 times EBIDA higher than Kraft valued. Overall, it is reasonable to reject its first considered “undervalued” offer.
   d. Do you think the board is functioning as it was expected to be? Please explain.
5. Hostile takeovers are often argued to be an important corporate governance mechanism. From the case and external research, do you agree with this argument? Why?

Sample Solution