30/9/2014

KraftsAcquisitionof
Cadbury

{
HaakonRoesten (A0128466X)
KohKokSeng(A0094618W)
WooDongHan (A0128402R)
Teo WeiSong(A0096824U)
WeeLiJia (A0083001B)

Overview
Introduction
BackgroundandCultureofKraftandCadbury
SWOTAnalysis
AcquisitionStrategies
GoalsforAcquisition
KeySuccessFactorsforAcquisition
KraftandCadburyAcquisition
Timeline
HostileAcquisition
Recommendations
WhereisIrene?
AbsenceofCEO
ManagerialMotives

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BackgroundCadbury

1824

1969

J.S.FRYS
ANDSON

CADBURY

CADBURY
SCHWEPPES

CADBURY

1919

2008

BackgroundKraft

1930

1903

KRAFT

KRAFTPHENIX
CHEESE
COMPANY

1929

NATIONAL
DAIRY
PRODUCTS

1976

KRAFTCO

KRAFT

1969

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CultureoftheCompanies
Vision

Mission

Culture

Kraft

Cadbury

To be recognized as
the undisputed
leader in the market
of food
Grow, acquire
market share trough
other firms.

Working together to
create brands people
love

Long history in
acquiring other
firms. American
business culture.

To provide our
customers with a
tempting and
exquisite taste
Quakers. Socialistic.
Take care of the
employees. Family. UK
business culture.

SWOTKRAFT
R&Dcapabilities

Limiteddistributionchannels

Largeworkforce

Weakbrandnameinemerging
markets

Largeproductportfolio

Expansioninemergingmarkets

Competitionfrompotential
mergerofHersheyandNestle
Lowercostcompetitorsin
internationalmarketsfromlocal
brands

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SWOTCADBURY
ExtensiveDistributionnetwork

LowinvestmentinR&D

Strongbrandname

Limitedproductportfolio

CommitmenttoFairTradeSourcing
andEnvironmentalProtection

Productrecall/Qualitycontrol
affectingbrandimage

VisionintoActionPlan

Customersdemandingforhealthier
products
Risingincomeinemergingmarkets
15%growthinchocolateindustry
overthepastthreeyears(20082010)

Competition
Healthcareconcerns
Increasingentriesofprivatelabels

ClassDiscussion:FromKrafts
pointofview,whywouldthey
wanttoacquireCadbury?

GROWTH!!

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KraftsAcquisitionStrategy
Goal1

TransformKraftintoaleadingsnack,confectioneryand
quickmealcompany

WhatCadbury Combinedglobalportfolioof40leadingbrands
Eachwithsalesabove $100million
can offer?
Motives

Strategic motiveunderconsolidation,whereKraftincreases
itsmarketpowerandgreaterscaleofoperationsincrease
efficiency

AnsoffMatrix ProductDevelopmentStrategy
Selling CadburyproductstoKraftconsumersandviceversa

Results

Increasebargainingpoweroversuppliers
Cutcosts
Reducedcompetition

KraftsAcquisitionStrategy
Goal2

Expanditsfootprint intoemergingmarkets

What
Cadbury
can offer?

Crossborderacquisition toenterAsia,MiddleEastandAfrica
market
ComplementarytoKraftsexistingnetworkinAmericaandChina

Motives

Strategic motiveunderextension
OfferedKraftafastwaytoobtaininternationalreach

Ansoff
Matrix

MarketDevelopmentStrategy
Expandingintonewmarkets

Results

Strongerbrandpresenceinemergingmarkets
Penetrationintonewterritoriesina costefficientway

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KraftsAcquisitionStrategy
Goal3

Increasepresenceininstantconsumptionchannelslike
petrolstationsandconveniencestores,inadditiontoKrafts
currentstrengthintraditionalmarket

WhatCadbury Extensivedistributionnetworkandchannels
can offer?
Motives

Strategic motiveunderconsolidation,whereresourcessuch
asdistributionchannelsareshared

AnsoffMatrix MarketDevelopmentStrategy
Selling ofproductsatmoreretailoutlets

Results

Greaterprofitmargin(impulse purchases,higherwillingness
topay)
Moreshelfspaceatretailoutlets

KraftsAcquisitionStrategy
Goal4

Createvalue forshareholders throughimprovedportfoliomix

What
Cadbury
can offer?

Moreexposuretowellknownconfectionery productslikeDairy
milkbarandHallscoughsweets

Motives

Financialmotivewherefirmscombinecomplementary
resourcestocreatesynergy
2+2=5effect

Sources of Revenueenhancement(enteringintonewmarketsandreduced
competition)
synergies
Costreduction(Economiesofscale)

Results

Projection of $250millionsavingbyeliminatingduplicationand
$125milliongainfromsynergiesinmarketing
(Source: AndrewClark,TheGuardian)

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Howdidthe
acquisitionfared?

MiniActivityFindyourbest
partner
1)ImagineyouareaCEOofacompany
2)Onthepieceofpaper,thereisaqualityorstrategy
thatrepresentsyourcompany
3)Youarenowgiven2minutestofindanappropriate
partnerthatyouthinkwillfitwithyourcompanys
desiredquality/strategy
4)Afterthe2minutesend,sharewiththeclassthe
qualityofyourcompanyandwhoyouhavechosento
workwithandwhy??

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LearningPointsfor
Activity
InM&Aandstrategicalliances,choosea
target/partnerwhois.
abletocomplementyourstrengthsandhelpyou
toovercomeyourweaknesses
alignedwithyourvalues,beliefs,culture

Howdidtheacquisition
fared?
StrategicFit

CulturalFit
Key
Success
Factors
Correct
Valuation

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StrategicFit
Strategic
Independence:
Extentonhowfar
capabilities and
resourcesare
shared
Organizational
autonomy:
Acquiredfirmhasa
verydistinct
culturefrom
Acquiringfirm

StrategicFit
UnderSymbiosisapproach
bothacquiredandacquiringcompanieslearnedfromeach
other
learningprocesstakestime
recommendedtoretaintheincumbentmanagerintheearly
stagestostabilizetheacquisitionbeforenewmanagerenters
Supportedincase:fitbetweenKraftandCadburyisdeemedas
Unique
However
CadburyCEOToddStitzer andChairmanRogerCarrresigned
whenKrafttakeover
ResultedinsteeplearningcurveforCadburyemployeesto
adopttoKraftstyleofmanagement

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CulturalFit

Governance
Model

Shareholdermodel
Focusonbusiness
expansion andwealth
generation

Stakeholder model
Careforemployees
Careforsuppliers(Fair
TradeSourcing)
Careforenvironment
(CocoaPartnership)

Organizational
Structure

Hierarchical structure
Dictative approach

Ratherflathierarchy
Leadersareopento
opinionsofemployees

CorrectValuation
CadburythinksthatKrafthasundervaluedthem..
Didnotaccountfortheirstrongbrandsandmarketposition
40%Cash/60%KraftSharesofferisunattractive,asKrafthas
underperformamongstcompetitorsinthepast8years
KraftshareholdersthinkthatCadburywasovervalued..
50%premiumpaidforCadburyistoohigh
WarrenBuffetreducedhisholdinginKraftfrom9.5%to6%

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Overall
Synergycreatedbytheacquisitionwasntas
strongasexpectedastherewere
Inappropriatestrategieswereadopted
undersymbiosisapproach
Underlyingculturaldifferences
Differencesinvaluation

Timeline of acquisition

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Timeline of acquisition

Whyisitahostileacquisition?

12

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Whydidtheysucceed
intheacquisition?

1.Risingpercentageofhedge
funds

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2.Theabsenceofcounterbid
fromothercompanies

vs

Whywasthereacrimonyafter
thetakeover?

14

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1.Unfulfilled promises

2.AbsenceofCEO

?
15

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Keyissuesidentified:
1.Defence fromtargetedcompanies
2.Political/Legalregulations
3.Managerialmotives

Objectivesofdefence tactics
1.Repeloffacquirersinterestin
takeover

2.Increasepriceoftakeoverto
maximise shareholderswealth

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Possibledefence tactics
1.StaggerBoardofDirectors
Onlypartoftheboardcanbeelectedeveryyear,makingit
difficultfortheacquirertoreplacetheentireboardimmediately.

2.PoisonPills
Alsoshareholderrightsplan,shareholdersareentitledtonew
sharesofthetargetataheavydiscountwhenahostilebidder
acquiresacertainpercentageofthetargetsvotingstock.

Possibledefence tactics
3.Dualclassstocks
Stocksofdifferentclasseswithdistinctvotingrights.Toprovide
foundersandexecutiveswithmorevotingpowerandcontrol of
thecompanywithrelativelysmallamountoftotalequity.

4.LeveragedCapitalization
Targetfirmmayissuedebttopaydividends,therebyincreasing
theprobabilityoffinancialdistress,makingitalessattractive
targetforacquisition.

5.WhiteKnight
Friendlyinvestorthatacquirestargetatafairconsideration with
thesupportfromthetarget'sdirectorsandmanagement.

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Groupdiscussion:

Whatelsecouldbedonetodefend
againsthostiletakeovers?
Group

Suggestion

Lego
H&M
Ryanair
Apple
HK Ocean
Park
Unilever

Political/Regulatory
concerns

Foreigntakeoversshouldbe
conductedinthebestinterestsofthe
targetfirmseconomy

Acquiringfirmsnotmeetingstandards
ofcareinmakingitsstatements

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KeyamendmentstotheUK
TakeoverCodeon19Sept2011

Publiclynamingpotentialofferors

Fixedputuporshutupdeadline
Generalprohibitiononofferrelatedarrangements
Disclosureofofferrelatedfeesaswellasadditional
financialinformation

Improveddisclosureofbiddersintentions
regardingthetargetanditsemployees

Improvingtheabilityfortargetemployee
representativestomaketheirviewsknown

{
IreneRosenfeld

CEO Cadbury

19

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IrenesLeadershipStyle

ClassDiscussion:
WhatcouldIrenehavedone
betterduringandafterthe
acquisition?
Isherleadershipstyleappropriate
forthisformofacquisition?

20

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WhywasIrenenotpresentduring
&aftertheacquisition?

Didshegoonaholiday?

Doesshesecretlyhatechocolates????

ClassDiscussion:
WhydoyouthinkIrenewasnot
presentinmostpartsofthe
acquisition,eventhoughshe
initiatedit?

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Orwerethereother
reasons

ShefoundCadburytobeweakandsmallcompanythatdidnot
requireherattention
Attendancewouldnotbethebestuseofmypersonaltime.

Avoidcontroversiesandcriticismsduringandafterthe
acquisition

Avoidtheneedtomakepromisesonherownname
Closureof
Cadburyfactory
inSomerdale

Retrenchment
ofemployees

Failuretocommit
toCadburysFair
Tradepolicies

Profitsandshare
pricesdropped

Kraft

Kraft+
Cadbury

Partofthebigplanforfuturedemerger
ofCadburyKraft,andestablishmentof
Mondelez?

KraftFoods
GroupInc
GroceryBusiness

Mondelez
Intl
International
SnacksBusiness

Ourstrategicactionshaveputusina
positiontocreatetwogreatcompanies,
eachwiththeleadership,resourcesand
strongmarketpositionstorealizetheirfull
potential, IreneRosenfeld

22

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PersonalCompensation

Beforeacquisition:USD18.7mannualsalary(withbonus)

Afteracquisition:USD26.7mannualsalary(withbonus)

Afterdemerger:USD28.8mannualsalary(withbonus)

StatusinIndustry/Economy

Ranked6th inForbeslistofpowerfulwomenin2012,aftersuccessful
acquisition

23

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Quiz
1.ThemainreasonforKrafttoacquireCadburyis________!!
2.Somekeysuccessfactorsofanacquisitionarestrategicfit,
culturalfit,correct________.
3.OneofthereasonthatKraftsucceededintheacquisition
wasduetorisingpercentageof_______funds.
4.Nameoneofthepossibledefence tacticsatargetfirmcan
employasdiscussedinthepresentation.
5.WhatisIreneRosenfeldsleadershipstyle?

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