I awoke on Monday morning to hear the first shot in the Kraft Foods bid for Cadbury: what may be a prolonged hostile takeover bid remincescent of the famous Barbarians At The Gate (but without the decadence) takeover of RJR Nabisco by KKR (Kohlberg Kravis Roberts & Co.) in 1988.
Cadbury is one of the few British success stories where people still ‘make things’, so there maybe a general public reaction falling into the hands of a processed cheese manufacturer; in the same way that there was public outcry when Rowntree Mackintosh was swallowed up by Swiss powdered baby milk behemoth Nestlé in 1998.
- Kraft have already shown that they have one eye on the public gallery with a promise to keep open a UK facility previously marked for closure by the Cadbury management board
- Kraft Foods is likely to be heavily indebited by the deal (already having 20 billion dollars of debt on its books, about half their market capitalisation, this weight will fall on the Cadbury business and a similar pattern of business challenges that RJR Nabisco faced will await the new Kraft subsidiary
- The Kraft Foods offer grossly undervalues the Cadbury business. Nestlé eventually paid 2.55 billion pounds for Rowntree Mackintosh in 1988. Given that the value of money halves every ten years or so, Kraft Foods offer is just under the same value in relative terms as the Rowntree deal. Cadbury is a more international business and has greater opportunities for future growth
- Looking at the Kraft balance sheet there is no incentive for UK shareholders to take Kraft Foods shares in payment. Kraft Foods business underperforms compared to Cadbury when you look at the statistics side by side
- From the purely mechanical point-of-view Kraft Foods shares would be a complete pain for UK small shareholders to buy or sell, since the company isn’t listed on the UK stock market
If I was a marketer in food products and consumer packaged goods space I would be concerned:
- Kraft Foods is likely to move decision-making away from the UK. This is likely to have a serious adverse impact on brand management and brand investment. US companies generally cut spending last in North America, then Asia and treat Europe as a cash cow
- How would Cadbury have gotten the Gorilla adverts through a US marketing committee and management team? It probably wouldn’t have worked because of the cultural gulf between them
- Ingredient purchases are likely to be globalised, decimating the supporting industries currently supplying Cadbury, reducing opportunities for future careers in the food industry