Amity Research Center –Chennai

Case Study Serial No: CHE/2010/06

Case study Title: Kraft Foods' Acquisition of Cadbury: A Strategy to Become a Global Leader in Food and Confectionery

Domain: Business Strategy

Author: Prof. S. Bhaskaran, Head, Amity Research Center –Chennai

Abstract

Kraft Foods US, a top US confectionery maker, had bought over Cadbury UK, another equally strong player in the confectionery market, for a consideration of $19.6 billion to become a major leader in the confectionery market. Cadbury had agreed for 840 pence per share which would give them a total valuation of $19 billion. Media reported that Cadbury slipped into US giant Kraft Foods and the British Prime Minister committed that the jobs in UK could be protected. It was estimated that Cadbury employees numbered more than 45000 worldwide. It was expected, Kraft Cadbury combine would generate large cost savings, enabling Kraft to become a global market leader. The combine would also generate annual sales of more than $ 50 billion. The market reaction was mixed especially from UK where the fear of job loss came up and cultural reaction was that the country’s honour namely Cadbury’s brand, had been given to US. Kraft Foods, having established a good market in Europe and US hoped to gain entry into developing countries like India and Brazil where Cadbury had a strong foothold and these markets were considered to be growing at the rate of 20% every year. Kraft- Cadbury combine aimed to capture global leadership which was occupied by Nestle (in 2009). It remained to be seen how Kraft Foods would encash on the well established Cadbury’s markets in developing countries and reach the top slot in the confectionery market overtaking Nestle.

Pedagogical ObjectivesThe case study helps to understand and analyse:

The global food and confectionery markets and role of major players like Nestle, Cadbury and Kraft Foods The strategies adopted by Kraft Foods in acquisition and enlarging the market share The strength and brand value of Cadbury built over 150 years The synergies of Kraft Foods and Cadbury combine The challenges from Nestle to be met by Kraft in reaching the top slot in the global market.

Case Study

“Owning Cadbury has made Kraft the biggest confectioner in the world with a footprint in developing markets such as India where it was weak”.1

- Irene Rosenfeld, Chief Executive, Kraft Foods

Kraft Foods was one of the major US confectionery manufacturers with net revenue of $42 billion and operating in 150 countries as of 2008.2 It was founded 1903 as a cheese company by James L. Kraft3 and over the years established

1 “After Cadbury, Kraft to have presence in India”, http://www.thehindubusinessline.com/blnus/10071821.htm, February 7 th 20102 “Kraft Foods Reports Strong 2008”, http://www.flex-news-food.com/files/kraft.results.04.02.09.pdf, February 4 th 20093 “Kraft Foods Inc. – Company history”, http://www.fundinguniverse.com/company-histories/Kraft-Foods-Inc-Company-History.html, 2002

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fine brands like Milka4, Toblerone5, Jacobs6, Oscar Mayer7 and Oreo8. Even though Kraft was able to capture US and European markets, it was the second largest food company in the world9 and Nestle10, Switzerland continued to occupy the premier position with its brands firmly established not only in developed countries but also in developing countries. Nestle had reported a net profit of $9.55 billion with an annual turnover of $99 billion in 2009.11 Next in the race for second position was Cadbury, UK with its popular brands like Dairy Milk bars, Roses chocolates, Trident12 gum and Halls13 cough drops, built over 150 years not only in UK and developed countries but also firmly established its presence in the developing countries like India, Mexico and Brazil for over 50 years. Cadbury’s revenues in 2008 stood at £5.4billion.14 Kraft Foods US with an ambition to reach the top slot in the global confectionery market made a bid for $10 billion to acquire a 100% stake in Cadbury at the end of 2009. The bid was rejected outright as the market value of the share was more than £ 7per share and Kraft Foods had to reconsider the valuation process of Cadbury and made a revised offer of around $ 19.6 billion in early 2010 over which the shareholders of Cadbury numbering over 90% consented to the acquisition. Even though initial reaction in UK was hostile both politically and culturally, the deal would be completed with a clearance from the regulators of US and UK. Kraft Foods would be having the advantage of the strength of Cadbury in the developing nations along with its established brands. It remained to be seen how far the combine of Kraft Foods and Cadbury would give competitive leverage to gain market share and compete with the leading player Nestle.

Kraft Food: Evolution and Growth

Kraft Foods Inc., the second largest food company in the world, had brands spread over five consumer sectors – snacks, beverages, cheese, grocery and convenient meals. (Exhibit I). Kraft Foods had a strong presence worldwide and operated in150 countries as of 2008. The company had evolved from a cheese company, started by James L. Kraft in 1903. (Annexure I). James L. Kraft had started his cheese business to relieve the grocers from travelling daily to procure cheese. The merger of Kraft – Phenix15 and National Dairy Products Corporation16 in 1930 led to the further growth of Kraft. New brands such as Miracle Whip17 salad dressing, Velveeta pasteurised process cheese spread, were launched and turned to be successful. Innovative advertising strategy followed by Kraft was another driving force for Kraft’s success. The company was renamed as Kraft Foods Company in 1945 and during the post war period Kraft Foods continued with its new product launches and innovative advertising.18

Exhibit IKraft Foods Brand Span Five Consumer Sectors

Food Segment : Products Snacks : Primarily biscuits (cookies and crackers), salted snacks and chocolate confectionery Beverages : Primarily coffee, packaged juice drinks and powdered beverages Cheese : Primarily natural, process and cream cheeses

4 Is Kraft Foods' best-selling brand of milk chocolate. It is sold in bar form, in holiday shapes, and in a variety of specialty forms.5 Is a chocolate bar well known for its distinctive packaging, its prism shape and its ubiquity in airport duty-free shops.6 Is a brand of coffee that traces its beginnings to 1895 in Germany by Iohann Jacobs and is today marketed in Europe by Kraft Foods7 Is an American meat and cold cut production company known for its hot dogs, bologna, bacon and Lunchables products.8 Is a trademark for a popular sandwich cookie currently manufactured by the Nabisco Division of Kraft Foods.9 “Kraft Foods Reports Strong 2008”, Op.cit.10 Is a multinational packaged foods company founded and headquartered in Vevey, Switzerland.11 “Nestle makes $9.55 billion full-year profit”, http://economictimes.indiatimes.com/news/international-business/Nestle-makes-955-bn-full-year-profit/articleshow/5592481.cms, February 19th 201012 Is a brand of sugarless chewing gum introduced by Cadbury in UK in January 2007.13 First launched in India in 1968 & soon established itself as a ‘therapeutic’ candy competing in the cough lozenge market.14 “Cadbury Annual Report & Accounts 2008”, http://cadburyar2008.production.investis.com/~/media/Files/C/cadbury-ar-2008/pdf/cadbury_ra_13mb_compressed.ashx, February 25th 200915 Cheese Company, the producer of Philadelphia cream cheese16 Makers of Breyers ice cream and Breakstone's cottage cheese and sour cream17 Is a salad dressing and sandwich spread manufactured by Kraft Foods. It is often used as an alternative to mayonnaise in recipes, although it is sweeter and has additional spices.18 “Cadbury Annual Report & Accounts 2008”, Op.cit.

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Grocery : Primarily spoonable, and pourable dressings, condiments and desserts Convenient Meals: Primarliy frozen pizza, packaged dinners, lunch combinations and processed meats

Source: “Form 10-K: Kraft Foods Inc –KFT”, http://www.kraftfoodscompany.com/Investor/sec-filings-annual-report/annual_reports.aspx, February 25th 2010

During the early 80s, Kraft Foods had merged with Dart Industries Inc., to diversify their business. Dart Industries Inc, was a company with varied business engaged in pharma drugs, electric appliances, plastics, glass and land development. However, the merger was not successful as expected and was dissolved in a span of six years. Since demerger, Kraft Foods continued its focus on food industry and used its successful strategy of innovative product launch and advertising. In 1988, Philip Morris Companies Inc, a tobacco giant and aggressive marketer bought Kraft Foods for a consideration of $12.9 billion. Prior to Kraft’s acquisition, Philip Morris had acquired General Foods in 1985 for $5.6 billion. General Foods was a food giant who had built huge multinational and multiproduct corporation through acquisitions of smaller food companies.19 In 1989, Philip Morris had combined Kraft and General Foods under the name Kraft General Foods, Inc. Post merger, Kraft General Foods was the largest food marketer in US and it further acquired few other companies such as Jacobs Suchard20. The merger of General Foods and Kraft had internal problems. Though, the company had a growth rate of 20% for two years (1989 – 1990) post merger, it faced difficulties due to large management. The response to consumers demand was slow and the growth rate of the company was also low. Hence, the company resorted to several restructuring activities like elimination of products that lagged sales, job cuts and closure of few plants worldwide but Coffee and Post cereal units of Kraft General Foods were successful. In 1993 it had acquired cold cereal business of Nabisco Holdings Corp21 and added shredded wheat products to its portfolio.22

In spite of various restructuring activities, Kraft General Foods’ financial results were not rosy. In early 1995, the three units, Kraft USA, General Foods USA and Kraft General Foods Canada were merged into one organisation under the name ‘Kraft Foods, Inc’. and Kraft General Foods International was renamed as Kraft Foods International. The company disposed off its bakery division in 1995.23 A successful product launch in the late 90s was DiGiorno Rising Crust pizza24. The company started reviving during the late 90s and it had acquired the license for the Taco Bell line of Mexican grocery products. It further entered into an agreement with Starbucks25 to market and distribute their whole bean and ground coffee. In early 2000, Philip Morris acquired Nabisco Group Holding Corp, integrated their operations with Kraft Foods, Inc and renamed it as Kraft Foods Inc.26 To reduce the debt incurred through this acquisition, Philip Morris had sold 16.1% stake to the public and the company raised a capital of $8.68 billion. Kraft Foods had divested few of its brands such as Farley’s and Sathers27 confectionery brands and Yemina28 and Vesta29 brands of its Mexican pasta business in late 2001 in order to maintain a powerful brand portfolio.30 In March 2007, Philip Morris had spun off Kraft Foods enabling Kraft to become an independent public limited company.31

In July 2007 Kraft Foods acquired global business of Group Dannone which included leading biscuit brands such as Lefevre Utile (LU)32, TUC33 and Prince34.35 Post acquisition Kraft became the world’s leading biscuit company and

19 “Cadbury Annual Report & Accounts 2008”, Op.cit.20 A Leading European maker of coffee and confectionery products.21 The principal activity of the Group is manufacturing and marketing of cookies and crackers.22 “Kraft Foods Inc. – Company history”, Op.cit.23 Ibid.24 An uncooked flat crust that rises when baked25 Is an international coffee and coffeehouse chain based in Seattle, Washington, United States.26 “Kraft Foods Inc. – Company history”, Op.cit.27 Was created as an umbrella to roll-up many small companies, brands and products under a common management team. Catterton Partners formed the Farley's & Sathers Candy Company in 2002 as a vehicle for the purchase of some of the former Farley Foods Company and Sathers Candy Company assets and brands from Kraft.28 Is a leading premium pasta brand in Mexico.29 Is a mainstream-priced brand.30 “Kraft Foods Inc. – Company history”, Op.cit.31 “History”, http://www.kraftfoodscompany.com/About/history/index.aspx32 Lefevre Utile, better known in North America by the initials LU, is a manufacturer brand of French biscuits, emblematic of the city of Nantes.33 Is a brand of snack biscuit available in Europe and North America.

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strengthened its business growth and expansion. In November 2007, Kraft Foods sold off its Post cereal business to Ralcorp Holdings Inc., a major private label maker of cereals and frozen foods, for a consideration $2.6billon.36

Kraft Foods had become a leading food company after a series of acquisitions and divesture in its history. Over the years the company had learnt that food business was very successful and innovative strategies had helped company’s growth. In order to have a long term sustainable growth the company had formulated a three year plan in 2006 with focus on revival of top line growth in 2007, growth at top and bottom lines of the company in 2008 and build profit margins and market share in 2009.37 Kraft Foods believed that strategies such as reframing brand categories to enhance customer satisfaction, exploiting new sales avenues and offering low cost products at premium quality would augment the revenue of the company and position it on the top slot.

Kraft Foods had focused upon its plan to attain a long term and sustainable growth since 2007. As planned earlier it worked on three metrics and augmented its operating income margin and organic revenue growth. (Exhibit II). In addition, Kraft Foods was able to improve its brand equity, deliver high quality earnings growth, generate strong free cash flow, progress in all its operations worldwide, and improve its margins despite reinvesting for future growth.38

Exhibit IIKraft Foods Growth (2006 – 2009)

Source: “Kraft Foods – Cagny Conference”, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzE3ODR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1, February 16th 2010

Launch of innovative products was another driving factor for Kraft Foods to success. Kraft Foods had adopted the concept of ‘open innovation’. The company believed that no company could be a leading innovator without partnership with external parties. Kraft Foods had worked with external people to develop new products and launch them in the

34 Prince biscuits are crisp, delicious cookies available in more than eight countries, including Algeria, Austria, Belgium, China, France, Germany, Netherlands and Spain.35 “Kraft Completes Acquisition of Groupe Danone's Global Biscuit Business”, http://www.flex-news-food.com/pages/12745/Danone/Kraft/kraft-completes-acquisition-groupe-danones-global-biscuit-business.html, November 30th 200736 Andrejczak, Matt, “Ralcorp to buy Kraft's Post cereal business”, http://www.marketwatch.com/story/kraft-deals-post-cereal-business-to-ralcorp, November 15th 200737 “Kraft Foods – Cagny Conference”, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzE3ODR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1 , February 16th 201038 Ibid.

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market. This had helped the company to reduce its Research and Development (R&D) costs and also speed up its development of new products.

After a successful turnaround in a span of three years (2007- 2009) Kraft Foods wanted to expand their base and become a global leading food company. In this backdrop, Kraft Foods viewed Cadbury, a leading UK based Confectionery Company, as a route to enter the developing markets and increase their market share. According to Irene Rosenfeld, Chief Executive of Kraft Foods, “The US group’s integration of Cadbury was proceeding as planned and would transform the company into “the global leader in sweets and snacks”.”39 Kraft Foods had successfully finalised the deal to acquire Cadbury for $19.6 billion in early 2010.40

Cadbury: An Overview

Cadbury, world’s second largest confectionery company had made a long journey since it was started in 1824 by John Cadbury. (Annexure II). 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.41 Due to sale of high quality products, the business expanded and John Cadbury started manufacturing cocoa and chocolate in 1831 at a rented warehouse.42 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 Cadbury’s sons took over the business and launched a product “Cadbury Cocoa Essence” during 1860s. 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. 43

The Cadbury produced different varieties of chocolates and with their first export order from Australia in 1881 the company prospered”.44 (Annexure III). In 1897, the first milk chocolate was produced. In 1905, one of the Cadbury’s popular products, Dairy Milk was launched.45 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.46 During this period, the other brands that pushed Cadbury to the premier position in chocolate manufacturing were Cadbury’s Milk Tray and Roses.47

As Cadbury started to prosper in the overseas market, the chocolate manufacturing process was interrupted during the Second World War. Chocolate was then considered important for the armed forces and chocolate manufacturing was brought under the control of the government. Later in 1949 rationing of chocolate ended and the 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 Schweppes48 to foray into the beverages market under the name Cadbury Schweppes Plc.49The Cadbury Schweppes became a leader in the confectionery and beverages market both in UK and abroad. The company acquired chewing gum brand Trident,

39 Farrell Greg, “Emerging markets lift Kraft sales”, http://www.ft.com/cms/s/161021a4-1afa-11df-88fa-00144feab49a,dwp_uuid=da5b2be8-9c6b-11de-ab58-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F161021a4-1afa-11df-88fa-00144feab49a%2Cdwp_uuid%3Dda5b2be8-9c6b-11de-ab58-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Findepth%2Fcadbury-kraft , February 16 th 201040 Sen Sudeshna, “Kraft wins over Cadbury with $19.6 bn offer”, http://economictimes.indiatimes.com/news/news-by-industry/cons-products/food/Kraft-wins-over-Cadbury-with-196-bn-offer/articleshow/5478453.cms, January 20 th 201041 “History of Cadbury”, http://www.englishteastore.com/cadbury-history.html42 “Timeline: Cadbury's long history”, http://news.bbc.co.uk/2/hi/uk_news/england/8467489.stm,January 19th 201043 “History Of Cadbury”, Op.cit.44 “Cadbury History”, http://www.birminghamuk.com/cadburyhistory.htm45 “History Of Cadbury”, Op.cit.46 “Cadbury History”, Op.cit.47 Ibid.48 Was a well-known British brand that manufactured carbonated mineral water and soft drinks49 Mason Rowena, “Cadbury: a history of a chocolate maker with its heart in Birmingham”, http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/6149112/Cadbury-a-history-of-a-chocolate-maker-with-its-heart-in-Birmingham.html, September 7th 2009

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Sunkist50, Canada Dry51 and Typhoo Tea52. By this time, the company had manufacturing operations worldwide and Cadbury had become a household name in many countries.53

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.54 Post demerger the company had made a substantial growth and the group had revenue of £5,384 million in 2008.55

With over 150 years of its presence in the confectionery market, Cadbury had become a global company with leadership position in 20 of the world’s top 50 emerging confectionery markets. (Exhibit III). 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, Cadbury’s ranked No. 5 with a market share of 7.5% in 2008. Cadbury’s major competitors were Mars- Wrigley 56, Nestle, Hershey57 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, Maynards58 and Cadbury Eclairs59. A major advantage for Cadbury was its presence in the emerging markets. In 2008, it was reported that emerging markets accounted for one –third of the confectionery revenue and contributed 60% of revenue growth.60 The company expected high growth rates in the emerging markets and had planned to focus more on these markets.61

Exhibit IIIPositions In Emerging Markets (2008)

50 Is a brand of orange- and lemonade-flavored soft drink launched in 1979.51 Is a brand of soft drinks marketed by Dr Pepper/Seven Up, a unit of Dr Pepper Snapple Group.52 Is a brand of tea in the United Kingdom. It was launched in 1903 by John Sumner Jr. of Birmingham, England.53 “Cadbury History”, Op.cit.54 “Demerger”, http://www.cadburyinvestors.com/cadbury_ir/shareholder_services/demerger/55 “Cadbury Annual Report & Accounts 2008”, Op.cit.56 Is a worldwide manufacturer of confectionery, pet food and other food products.57 Is the largest chocolate manufacturer in North America58 Is a candy and the Maynards brand was first developed in the UK almost 100 years ago with the launch of the much loved Wine Gums59 Eclairs was first discovered by a local confectionery firm in London, England in the 1960s. The firm then became part of Cadbury in 1971 making Cadbury Eclairs the second largest brand in the company.60 “Cadbury Annual Report – 2008”, Op.cit.61 Ibid.

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Source: “Cadbury Annual Report & Accounts 2008”, http://cadburyar2008.production.investis.com/~/media/Files/C/cadbury-ar-2008/pdf/cadbury_ra_13mb_compressed.ashx, February 25th 2009

Cadbury with leading positions in the confectionery market and strong presence in the emerging markets attracted Kraft Foods, which aimed to become a global player in the confectionery market. “Kraft’s dogged pursuit of Cadbury, and justification of the deal is driven by the companies ‘complementary geographical’ footprint, mainly emerging markets India, Brazil and Mexico.”62 Kraft Foods had initiated the acquisition deal in August 2009. Though the offer was rejected by the Cadbury’s chairman, Roger Carr initially as it was underpriced, after a period of six months, Kraft with their sweetened offer finalised the deal in January 2010 for $19.6 billion.63

Kraft Foods’ Acquisition of Cadbury: Challenges and Opportunities

Key motivating factor for Kraft Foods acquisition of Cadbury was to expand Kraft’s global presence and tap the emerging markets. This acquisition would also lead to integrate world’s famous brands such as Kraft’s Oreo cookies, Velveeta cheese and Cadbury’s chocolate bars under one roof. The acquisition was expected to help both the companies to compete effectively against the rivals. “Renowned industry experts also reason that a deal between Kraft and Cadbury would create a global food giant with about $50 billion in annual revenues, and would boost Kraft’s growth prospects by giving it access to new brands, especially in the attractive confectioneries segment.”64

62 “Kraft wins over Cadbury with $19.6 bn offer”, Op.cit.63 Boyle Catherine, “Timeline: How Kraft won over Cadbury”, http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article6993682.ece?token=null&offset=0&page=1, January 19th 201064 “Acquisition by Kraft: What Does the Market Hold for Cadbury?”, http://m2weekly.com/cover-cover/acquisition-by-kraft-what-does-the-market-hold-for-cadbury/

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Kraft Foods – Cadbury acquisition process had started from August 2009. (Annexure IV). Before the final acceptance of Cadbury, Kraft Foods had repeatedly approached the UK chocolate firm both formally and informally. The initial offers were rejected and Kraft Foods was pressurised to increase their offer value. Moreover, Cadbury’s performance was high which had made the acquisition process tougher for Kraft Foods. In early 2010, the world’s largest food company Nestle had acquired the pizza business of its rival Kraft Foods for $3.7 billion. The funds from this deal had helped Kraft Foods to increase the offer of Cadbury and thereby acquired the company.65

The Cadbury deal would turn Kraft Foods to a global powerhouse and the combined company was expected to earn revenue of $50 billion and would also create new distribution channels for the Kraft products.66 Access to emerging markets was another attracting factor. Kraft Foods expected to increase their market share in developing economies from 20% Pre-Cadbury acquisition to 26% post acquisition.67 (Annexure V). The chairman of Kraft Foods, Irene Rosenfeld had opined that this acquisition would leverage the company to world’s No.2 food company and No.1 Company in North America. The company had also aimed to capture the best of both the companies and maintain business momentum.68

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 Kraft’s brand. “Analysts had long supported Kraft’s rationale for the merger, which would add Trident gum and Dairy Milk chocolates to Kraft’s brands and help the American food company expand into faster-growing countries like India, South Africa and Mexico.”69

Though Kraft – Cadbury combine would improve Kraft’s position in the chocolate market, the competition from Nestle, the global No.1 food company, would continue and Nestle would dominate the food and beverages market. Nestle’s brands included Nescafe70, Perrier71, Jenny Craig72 and Haagen Dazs73 had net sales of $99billion in 2009. The earnings per share stood at $2.68.74 Nestle products could be catergorised into Food and Beverages and Pharmaceuticals. Food and Beverages included Powdered and Liquid beverages, Water, Milk Products, Ice Cream, Cooking Aids, Confectionery and Pet Care products. In 2009, Nestle had achieved above target and expected a higher return in 2010. Analyst had forecasted that Nestle growth would be around 4.6% in 2010. An analyst, Patrick Hasenbohler had said “"The Company is well positioned especially in the emerging markets as soon as economic growth accelerates again."75 Though Nestle ranked high in the food market, Kraft – Cadbury deal had impacted the global player. Post Kraft – Cadbury acquisition Nestle was expected to become No.3 in the chocolate world. To retain its leading position Nestle had plans to acquire Hershey. 76

Apart from the competition from Nestle, another challenge Kraft – Cadbury would have to overcome intra – competition. Though Kraft’s major brands such as Toblerone were of continental taste and Cadbury’s Diary Milk brand was of British

65 “Nestle waits for market pressures to soften Hershey”, http://www.ibtimes.com/articles/5543/20100126/nestle-waits-market-pressures-soften-hershey.htm, January 26th 201066 “Acquisition by Kraft: What Does the Market Hold for Cadbury?”, Op.cit.67 “Kraft Foods – Cagny Conference”, Op.cit.68 Ibid.69 Werdigier Julia and J. Michael, “Cold Response to Kraft’s Cadbury Bid”, http://www.nytimes.com/2009/11/10/business/global/10kraft.html, November 9th 200970 Is a brand of instant coffee made by Nestlé.71 Is a brand of bottled mineral water made from a spring in Vergèze in the Gard département of France.72 Is a weight loss, weight management, and nutrition company founded by Jenny Craig and Sidney Craig now headquartered in Carlsbad, California. The company became a part of Nestlé Nutrition in 2006.73 Is a brand of ice cream, established by Polish immigrants Reuben and Rose Mattus in the Bronx, New York, in 1961.74 “Nestle makes $9.55 billion full-year profit”, Op.cit75 Maclnnis Laura, “Nestle outshines peers, expects stronger 2010”, http://uk.reuters.com/articlePrint?articleId=UKLDE61I05W20100219, February 19th 201076 “Nestle waits for market pressures to soften Hershey”, http://www.ibtimes.com/articles/5543/20100126/nestle-waits-market-pressures-soften-hershey.htm, January 26th 2010

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– style, the companies brand compete closely in Poland and Romania markets.77 However, Anand Ramanathan, manager, KPMG78, believed that the acquisition would be a win – win situation for Kraft. He said that “It will use the Cadbury network to launch its dairy products here (India), even as its presence remains secure in chocolate and confectionery.” He further added that, “I don’t think Kraft will waste any time, especially when rivals such as Danone have already forayed into the space in India. Nestle is already there.”79 “Kraft may not find it very easy to capture the Indian markets. Strong players like Britannia, Nestle, Parle, HUL, Pepsi Amul and ITC are already ruling consumers' hearts. While Cadbury's strong distribution network and Kraft's strong balance sheet and ability to innovate would aid its entry, how is it going to face the heated competition is to be seen.”80 Against this backdrop, it remained to be seen whether Kraft Food – Cadbury deal would be successful in getting competitive advantage in the extended geographical operations?

Annexure IKraft Foods: Key Events

In 1903, James L. Kraft started a wholesale cheese business in Chicago, Illinois. In 1926, Kraft Cheese Company bought a stake in Australia's Fred Walker & Co, which made vegemite yeast

spread. In 1937, Kraft's macaroni and cheese dinner product was well received in the U.S. market. In 1985, Philip Morris Cos. purchased General Foods. In 1989, General Foods and Kraft merged to become Kraft General Foods. In the 1990s, Kraft General Foods acquired Jacobs Suchard AG, the maker of Toblerone bars, and bought

confectioneries in central and Eastern Europe and in Scandinavia. In 2007, Altria Group, formerly Philip Morris, completed the spin-off of Kraft. In 2007, Kraft appointed Irene Rosenfeld as its Chairman. Rosenfeld had already been Chief Executive since

2006. In 2007, Kraft completed the acquisition of Groupe Danone SA's global biscuit business Kraft's 2008 annual report said the company aimed to cut costs, reorganise its European operations while

building scale in developing markets. It had $41.9 billion of revenue in 2008 and employed 103,000 employees in more than 70 countries, sold its

products in more than 150 countries.Source: “At A Glance: The History Of Kraft Foods And Cadbury”, http://www.nasdaq.com/aspx/stock-market-news-story.aspx?storyid=200909070636dowjonesdjonline000413&title=at-a-glance-the-history-of-kraft-foods-and-cadbury

Annexure IICadbury At A Glance

Cadbury: World’s second-largest confectionary company after Mars-Wrigley, making brands such as Dairy Milk chocolate and Trident gumFounded: 1824 when John Cadbury opened a shop in Birmingham selling tea and cocoaBase: Bournville, Brimingham with production at Somerdale near BristolWorkforce (2008): 45000 in 60 countries with 6000 jobs in UKRevenue (2008): $8.8 billion

77 “Acquisition by Kraft: What Does the Market Hold for Cadbury?”, Op.cit.78 Is one of the largest professional services firms in the world and one of the Big Four auditors, along with PricewaterhouseCoopers (PwC), Deloitte Touche Tohmatsu (Deloitte) and Ernst & Young (EY).79 Pinto Susan Viveat, “Kraft products to take Cadbury route to India”, http://www.business-standard.com/india/news/kraft-products-to-take-cadbury-route-to-india/383140/ , January 20th 201080 “Kraft-Cadbury deal: Does it hold promise?”, http://business.rediff.com/report/2010/jan/29/does-kraft-cadbury-deal-hold-promise.htm, January 29th 2010

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Operating Profit (2008): $1.0 billionSource: “Cadbury board accepts sweetened Kraft offer”, The Hindu Business Line, January 20th 2010

Cadbury’s Timeline Details

1824: John Cadbury's shop was opened in Bull Street, Birmingham. As a young Quaker, he was against alcohol and so instead sold tea, coffee, cocoa and drinking chocolate.

1831: John Cadbury became a manufacturer and produced cocoa and chocolate. 1854: The firm received Royal Warrant as manufacturers of chocolate and cocoa to Queen Victoria. 1860s: John Cadbury retired in 1861 and the business was taken over by his sons Richard and George. In

1866, the brothers launched a new product, Cadbury Cocoa Essence. 1879: Opened a “factory in a garden”, Bournville. 1893: George Cadbury bought more land in Bournville and began building the village which surrounds the

factory. 1897: Cadbury launched its first milk chocolate bar. 1905: Cadbury Dairy Milk was launched. 1921: The firm opened its first overseas factory in Tasmania. 1930: Cadbury had become the 24th largest manufacturing firm in Britain. The original 14-acre site at

Bournville had increased to 81 acres. More than 100 acres was devoted to recreation, including dressing areas, rest rooms and a concert hall featured on site. The well-being of the workforce was important to the Cadbury family.

1969: The firm merged with Schweppes and became Cadbury Schweppes. 2008: Cadbury and Schweppes demerged, separating its confectionary and drinks business.

Source: “Timeline: Cadbury's long history”, http://news.bbc.co.uk/2/hi/uk_news/england/8467489.stm, January 19th 2010

Annexure IIICadbury Product Timeline

1865 – Cadbury Cocoa Essence1875 – Cadbury Easter Eggs1897 – Cadbury Milk Chocolate1905 – Cadbury Dairy Milk1908 – Cadbury Bournville Chocolate1915 – Cadbury Milk Tray1920 – Cadbury Flake1923 – Cadbury Crème Eggs1929 – Cadbury Crunchie1938 – Cadbury Roses1948 – Cadbury Fudge1968 – Cadbury Picnic1960 – Cadbury Buttons1970 – Cadbury Curly Wurly1983 – Cadbury Wispa1985 – Cadbury Boost1987 – Cadbury Twirl1992 – Cadbury Timeout1996 – Cadbury Fuse2001 – Cadbury Brunchbar, Dream & SnowFlake

Source: "History Of Cadbury”, http://www.englishteastore.com/cadbury-history.html

Annexure IVKraft – Cadbury Deal: Timeline

August 2009 - Irene Rosenfeld, chairman and chief executive of Kraft, approached Cadbury chairman Roger Carr about a possible Kraft offer for the British company.

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August 31 Mr. Carr wrote back informing that Cadbury’s board had rejected the initial offer as too low. September 7 - Kraft made an informal approach to Cadbury, valuing the company at £10.2 billion. Cadbury’s

board rejected the offer almost immediately. October 21 - Cadbury’s third quarter results beat expectations with a 7% sales rise. November 3 - Kraft reduced its sales forecast from 3% to 2% but unveils profits significantly ahead of

analysts’ expectations. November 9 - Kraft launchdc hostile bid for Cadbury worth £9.8 billion. November 18 - Hershey and Ferrero, the confectioners, confirmed that they were considering making a bid for

Cadbury November 22 - Mr. Carr indicated that Hershey may be preferred by the Cadbury board as a bidder because

its values are similar December 4 - Kraft posted its 180-page circular explaining its bid to shareholders December 14 - Cadbury launched its defence against Kraft's bid, raising financial targets again and promising

higher dividends January 5 - Kraft sold its frozen pizza arm to Nestle for $3.7 billion. Nestle confirmed it will not bid for Cadbury January 12 - Cadbury again rejected Kraft’s offer as it announced that sales rose 5% in 2009 January 13-14 - Irene Rosenfeld visited UK to woo Cadbury shareholders. There was several turn down

meetings as Kraft's offer was still below 800p per share January 19 - Cadbury’s board recommended a raised offer by Kraft of 840p plus a 10p dividend for each

Cadbury share, valuing the confectioner at £11.9 billion January 25 – Deadline for Hershey or Ferrero to make a counter bid for Cadbury February 2 – Deadline for Cadbury shareholders to accept Kraft’s bid

Source: Boyle Catherine, “Timeline: How Kraft won over Cadbury”, http://business.timesonline.co.uk/tol/business/industry_sectors/consumer_goods/article6993682.ece?token=null&offset=0&page=1, January 19th 2010

Annexure VKraft Foods Growth After Acquisition

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Source: “Kraft Foods – Cagny Conference”, http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzE3ODR8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1, February 16th 2010

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