Chocolate giant
January 19, 2010
The US food giant Kraft is about to get even bigger. The company has confirmed that the board of British confectionery-maker Cadbury has agreed to a takeover bid of 13.1 billion euros ($18.9 billion).
In a statement released by Kraft, the company said it would pay 840 British pence per share. 500 pence would be paid in cash while the rest would be in Kraft food shares.
In addition, the statement said that Cadbury shareholders "will be entitled to receive 10 pence per Cadbury share by way of a Special Dividend following the date on which the Final Offer becomes or is declared unconditional."
Now all that is left is for Cadbury shareholders to accept the deal, something Phil Spencer, an equity analyst at the London based investment management firm Brewin Dolphin, told Deutsche Welle was certain to happen.
However, Spencer, who has been watching both companies for several years, said that he was surprised that the offer had been accepted by the board. He added that the 840 pence price was still too low and that it "undervalues a very uniquely focused confectionery company."
War of words
This signals the end of a bitter negotiating war between the two companies. Kraft had initially offered 11.44 billion euros back in September. Cadbury rejected the offer, calling it "derisory" and said that Kraft's offer "completely misses the value we have already created in Cadbury."
In response, the US food giant filed a hostile takeover bid one month later. Cadbury attempted to convince US chocolate giant Hershey and Italy's Ferrero to join together and come up with a counter offer. However, the two were unable to amass the necessary finances. Fortunately for Cadbury, the company's shareholders refused to accept the bid.
There was some speculation that American billionaire Warren Buffett, Kraft's top shareholder, would block any attempt by the company's chairperson and CEO Irene Rosenfeld to buy out Cadbury, if Kraft offered too many stock options and not enough cash. Rosenfeld and the board solved that problem by raising $3.7 billion in capital through the sale of their frozen pizza division to rival Nestle.
Talk of job losses
News of the accepted offer caused Cadbury's stock price on the FTSE 100, the share index of the 100 most highly capitalized companies on the London Stock Exchange, to rise by 3.41 percent to 835 pence on Tuesday.
This despite fears about British job losses. Cadbury employs some 45,000 people around the globe, including 5,600 at factories in Great Britain and Ireland. Responding to the announcement, British Prime Minister Gordon Brown said that his government was determined to help save jobs at Cadbury.
"We are determined that the levels of investment that take place in Cadbury in the United Kingdom are maintained and we are determined that, at a time when people are worried about their jobs, that jobs in Cadbury can be secure," Brown said at a Downing Street press conference.
In an interview on the Kraft website, CEO Irene Rosenfeld said that it was "too early to make any specific commitments," but that there "will be opportunities for talented employees from both companies to continue to have very attractive and successful careers."
"In addition, we can confirm that the existing contractual employment rights, particularly pension rights, of all Cadbury employees will be totally safeguarded," she added.
Chocolate giant
Kraft is the largest food and beverage maker in the US and the second largest in the world, following Swiss-based Nestle. It owns own such famous brands as Oreo, Nabisco, Oscar Meyer and Dairylea.
Cadbury is currently the second largest producer of confectionery in the world, right behind Mars International, based in the US. If the deal is accepted, it will create the largest confectionery group on the planet, bringing together Cadbury's Dairy Milk chocolate, Cream Eggs and Trident gum with Kraft's Milka, Toblerone and Terry's chocolate brands.
In 2008 Warren Buffett's holding company Berkshire Hathaway and Mars International bought out the Wm. Wrigley Jr. Company, the world's largest chewing gum producer, for $23 billion in cash. That makes Buffett one of the most heavily invested people in the chocolate business the world has ever seen.
Kraft's and Cadbury's combined sales would amount to some 70 billion euros, closing the gap on market leader Nestle.
Author: Mark Mattox
Editor: Susan Houlton