Principles of the University’s Assessment Compact

Assessment information
This module follows the principles of the University’s Assessment Compact, developed in conjunction with the Student Union, to ensure good practice and transparency in

assessment and feedback processes. The Assessment Compact can be found in your Programme Handbook or on your programme’s Brookes Virtual site.
Assignment task
Assignment 1: Individual Case Study Assignment (4,000 words)
“Where’s Irene” … and just exactly what is she up to?
– The acquisition of Cadbury PLC by Kraft Foods, 2010

Task – with reference to the case study, you should answer the following questions:
1.         With reference to the case study, provide an example of a core theme or
issue which clearly illustrates a link between theories or concepts drawn from at least
two pre-requisite modules.

2.    What is the company strategy with regard to mergers and acquisitions? Does this strategy make sense? From an organizational perspective, what is required for

this strategy to work effectively?

3.         How would you describe the Kraft strategy at the corporate level? Are they pursuing
a global strategy, a multidomestic strategy an international strategy or a transnational
strategy? You should provide clear evidence in support of your reasoning.

4.    Does this overall strategy make sense given the markets and countries that Kraft participates in? Why?

5.         Through your own research on Kraft, identify appropriate performance indicators
(both financial and non-financial).
Once you have gathered relevant data on these, undertake a performance analysis
of the company over the last five years. What does the analysis tell you about the
success or otherwise of the strategy adopted by the company?

6.    Is Kraft’s management structure and philosophy aligned with its overall strategic            position?

This case relates the hard-fought acquisition battle by Kraft Foods to acquire the large confectionery manufacturer Cadbury.  Like many cross-border acquisitions the

bid battle was controversial, and attracted considerable investor and wider stakeholder comment, often less than favourable.  In the event, Cadbury’s defence led to an

increased offer, the bid was successful, but subsequent UK parliamentary proceedings  censured Kraft’s senior management, warned against the role of short-term hedge

fund  investors in the bid, and raised numerous policy issues concerning large acquisitions.  The case concludes by examining the subsequent demerger of Kraft in 2012,

and the creation of the global snacks business of Mondeléz International.
The case was prepared by Eric Cassells, Business and Management Department, Oxford Brookes University Business School.  It is intended as a basis for class discussion

and not as an illustration of good or bad practice.  ©Eric Cassells, 2013.  Not to be reproduced or quoted without permission.
“….. in the history of M&A activity there is no M&A deal that has made more people unhappy than the impending acquisition of Cadbury by Kraft”
The unhappy people included trade unions, employees, Cadbury investors, Kraft investors, senior government ministers, and, perhaps most unusually, confectionery

traditionalists and the heritage lobby.  Even though both corporations were already well over one hundred years old, and both claimed rich heritages and histories of

growth by innovation and acquisition.
Cadbury’s heritage
Cadbury was founded in Birmingham, England in the 1820s by John Cadbury to sell tea, coffee and chocolate drinks, before becoming one of the first manufacturers of

branded chocolate bars.  The business was awarded a Royal Warrant in 1854 as manufacturers of high quality cocoa and chocolate to Queen Victoria.  As their product

lines expanded, the family heirs to the business built a purpose-designed factory in 1878 on an estate they named Bourneville.  The Cadbury family were Quakers  by

conviction, and their social interests led George Cadbury to build a “model village” for his workers on adjacent land to “alleviate the evils of modern cramped living

conditions” and create an alcohol-free living community.  This village was the foundation of Cadbury’s image as a benevolent, enlightened, and paternalistic employer,

maintained in later years through the creation of the ’Cadbury Foundation’.
In 1905, Cadbury introduced its innovative “Dairy Milk” chocolate bar, using a much higher proportion of milk than previous products in the market.  This became the

best-selling chocolate bar in Britain, and was followed by a range of other successful chocolate-based bars.  The bars were packaged in a distinctive purple colour

(see figure 1), that became an important element of the company’s branding.

Figure 1 – Original Cadbury Dairy Milk packaging, showing the distinctive Cadbury colour.
In 1918 the company opened its first international plant in Australia, and acquired important brands in a merger with JS Fry in 1919.  The most significant merger

occurred, however, in 1969 when it joined with Schweppes to form a major international conglomerate spanning confectionery and soft drinks. More drinks brands were

subsequently acquired and Cadbury Schweppes consolidated its position as the third largest soft drinks company in the world behind Coca Cola and Pepsi.  By 2007,

however, group management believed that shareholder value would be increased through a demerger of the businesses, the component parts may be worth more than the whole

business. On May 2nd 2008 Cadbury (focussing on chocolate and confectionery) demerged from the drinks businesses, which became “Dr Pepper Snapple Group”. Cadbury then

concentrated on the core chocolate and confectionery business, making a commitment to source all cocoa beans through Fair Trade channels in August 2009.
In October 2007, Cadbury announced the closure of its ageing Somerdale plant (located near Bristol in the UK) with over 500 jobs affected.  Production from this plant

was to be concentrated in other factories in the UK and Poland.  A further step in focussing on the group’s core was taken with the sale of its “own-label” (non-

Cadbury- branded) trading division for £58 million (=$88.2mn = €68.8mn) .  This strategy of focussing the group and driving cost efficiencies to produce shareholder

value was overtaken by the unwanted acquisition bid from Kraft.
Kraft has its origins in Chicago in 1903, originally established selling cheese.  By 1914, the Kraft family had moved into cheese manufacturing in Stockton, Illinois,

and patented the production of processed cheese in tins in 1916.  Demand for this product grew dramatically with the need to supply US forces in the First World War.
By 1924, the growth of the company had led to a listing, and the opening of a sales office in London.  Over the next thirty years, the company grew through a series of

deals to sell dressings, dinners (such as macaroni cheese) , and cheeses.  By 1953 Kraft had 200 products in its portfolio sold throughout the US, Canada, UK, Germany,

and Australia.   The corporation became an increasingly diversified business producing grocery foods, snacks, and confectionery, and it continued to expand

Further diversification took Kraft beyond foods in 1980, through a merger with Dart Industries, maker of Duracell batteries and Tupperware plastic containers.  Already

by 1986, however, the company was re-focussing on foods by spinning off most of these non-foods businesses.  Deal-making continued, however, with the merger of Kraft

and the General Foods business of Philip Morris, to form Kraft General Foods in 1989, the world’s second largest foods business.
Throughout the next two decades acquisition of brands continued at pace, in snacks, general foods and drinks, and confectionery, with deals taking place in  Italy, the

UK, Sweden, Hungary, Norway, Slovakia, Lithuania, Poland, Ukraine, Bulgaria, Brazil, Romania, Australia, Germany, Russia, Turkey, France, Egypt  and Morocco.  In 1993,

Kraft acquired the business of Terry’s of York, a leading confectioner in the UK – an acquisition that would return to haunt the company in its pursuit of Cadbury.
Meanwhile, Kraft’s independence from Philip Morris was started through the second largest US IPO on the New York stock exchange in history in 2001, completed through a

final spin-off in March 2007 .  This left Kraft as the world’s second-largest food company with revenues of $42 billion in 2008.(Kraft, 2009)
The Bid
On 28 August 2009, Irene Rosenfeld (CEO of Kraft) met Roger Carr (Chair of Cadbury) to discuss a possible friendly takeover, valuing each Cadbury share at £7.55.  Carr

rejected the offer, but news of Kraft’s interest was leaked on the London stock market 10 days later.  By this stage, the potential offer price had dropped to £7.45

per share, once again rejected by Cadbury’s board.
In the period following this announcement, Cadbury wrote to the UK Takeover Panel on 21st  September, asking them to issue Kraft with a “put up or shut up” notice,

whereby a formal offer is required to be made by a certain date, or the potential bidder must withdraw (and stay silent) for six months.  This protects the target

company from on-going uncertainty, and discourages the use of informal “speculative” offers to put a target “in play”.  This was done on 30th September, and Kraft was

given until Friday November 9th to table a formal bid.
The bid came on November 9th, valuing each Cadbury share at £7.45 which consisted of £3 in cash plus 0.2589 new Kraft shares for every Cadbury share.  Allowing for

exchange fluctuations, Kraft valued their bid at £9.8 billion.  The offer document (Kraft, 2009) highlighted the following benefits:
•    A “substantial” premium of between 26% and 39% over the free-standing share price of Cadbury.
•    an “attractive multiple” of 13.9 times Cadbury’s EBITDA
•    Kraft’s current trading and prospects were deemed “strong”, based on its third quarter 2009 reporting data.  Kraft stated that “this provides evidence of its

long-term sustainable business model and the attractiveness of Cadbury shareholders of holding Kraft Foods Shares”
•    Kraft identified estimated cost savings of $625 million, in line with other historical transactions at 6.5% of revenues.  The $625 million was to come from

savings and scale economies in procurement, manufacturing, customer service, logistics and R&D ($300 m), general and administrative costs ($200 m), and marketing and

selling costs ($125 m).   In addition, significant revenue-based synergy benefits would take “time to be realised”.
•    The fit between Kraft and Cadbury was deemed “unique” and was deemed to enhance Kraft’s stated strategic priorities.  “Unique” was usually interpreted by

analysts at the time as a reference principally to perceived complementary distribution channels in emerging markets.
•    Kraft was committed to on-going financial discipline.

Kraft also said it had built “strong operating and financial momentum”, strengthened its leadership team, invested in core brands, and built scale in its key market

places.  Its four priorities for long-term strategy, which would be enhanced by the Cadbury acquisition are:
Kraft priorities    The importance of the Cadbury acquisition
Focus on growth categories to transform Kraft into a leading snack, confectionery and quick meal company.    A combined global portfolio of 40 leading confectionery

brands, each with sales in excess of $100 million.
Expand its footprint and scale in growing developing markets.    Cadbury offers Kraft a complementary presence in developing markets, with Kraft strength and channels

in Brazil, China and Russia, and Cadbury in India, Mexico and South Africa.
Increase presence in “instant consumption” channels as they continued to grow relative to traditional grocery channels in the established US and EU markets.    Kraft’s

strength lay in traditional grocery channels, whereas Cadbury was well placed in “instant consumption” channels.
Pursue margin growth, through improved portfolio mix, reducing costs, and investing in quality.    The higher exposure to confectionery of a post-acquisition Kraft would

provide Kraft shareholders with an improved portfolio of higher-margin growth products.

Those Unhappy People – trade unions
Trade unions in the UK examined the bid and expressed their concern, predicting that up to 7,000 jobs would be lost.  Kraft commented that they hoped to reverse the

closure, previously announced by Cadbury, of the Somerdale plant with the loss of 500 jobs.  This may have been designed to win over employee or union backing, but

drew suspicion instead as:
•    The offer document laid out a significant cost savings target, which seemed more likely to lead to job losses than saved jobs.
•    The historical precedent of Kraft’s acquisition of Terry’s of York in 1993 existed.  In this acquisition, Kraft had promised to maintain production in York,

but closed the York factories soon after the takeover.
Those Unhappy People – the heritage and nationalist lobby
Like all cross-border takeovers, the bid raised protectionist fears for jobs, skills (such as R&D), and corporate control being stripped out of the UK.  Additionally,

Kraft had to contend with Cadbury’s iconic status in the UK, in terms of its brands, its reputation for community involvement, and its heritage as a distinctive

paternalistic employer.
In May 2012, Felicity Loudon, a Cadbury family heiress sold her £48 million house to raise funds to start her own chocolate company.  Angered by the acquisition of the

company her great-grandfather established by an “American plastic cheese company”, she intended her new company to be a “memorial to her great-grandfather”.
Those Unhappy People – Warren Buffet
Kraft’s bid did not attract the uniform support of its own investors.  The largest shareholder in Kraft was Berkshire Hathaway, led by Warren Buffet, the influential

investor, and a favourite of the US financial news channels.
On September 16th 2009, Buffet warned that Kraft must not “overpay” for Cadbury.  This was ominous for Kraft as Buffet was a long term supporter of the corporation,

holding 9.4% of shares precisely because he believed the shares were undervalued.  More provocatively, on Bloomberg’s business news channel on January 19, whilst

describing Kraft CEO Irene Rosenfeld as a “good person”, Buffet described an increased final takeover (together with the near-simultaneous sale of Kraft’s US pizza

business to raise necessary funds) as a “bad deal”.  He dismissed the potential synergy benefits identified in Kraft’s offer document, saying he was distrustful of

unrealised benefits.  He stated that, “If I had a chance to vote on this, I’d vote no”.  Referring to the proposed acquisition of Cadbury specifically, he concluded,

“I feel poorer”.  Kraft’s shares fell 2% on his intervention.  Irene Rosenfeld was asked about Buffet’s intervention by Bloomberg TV.  Refusing to be drawn, she stated

that she believed Buffet was evaluating the deal from the basis of existing cash flow, and ignoring the potentially-transformational synergies which were at the heart

of the strategy to acquire Cadbury.
The Cadbury defence
Cadbury published its formal defence document on 14 December, 2009.   The four pillars of the defence were:
1.    Cadbury is a strong pure-play confectionery business with iconic brands and excellent market positions
•    leading positions across the world in all confectionery segments
•    number one confectionery company in fast-growing developing markets outside the US
2.    Cadbury has been transformed through an on-going “Vision into action” plan, which was delivering ahead of targets
•    The initiative delivered a simplified portfolio of pure confectionery brands, a de-layered organizational structure, the renewal of manufacturing ability,

improved distribution in emerging markets, and investment in marketing and R&D.
•    Whilst 80% of the required investments of the programme had been made, only 45% of the anticipated benefits had been realized to date
3.    Kraft undervalues what Cadbury has created
•    By December 14, the effective value of the bid had dropped to £7.26, due to share price and currency fluctuations.
•    Cadbury’s forecast for 2009 indicated the EBITDA multiple on offer was low at 11.6 times.  This multiple compared to higher multiples expected in confectionery

– 15.5 times  proposed for Hershey by Wrigley, and 18.5 times paid by Mars for Wrigley
•    The 60% majority of the consideration comprised Kraft shares, which had “significantly underperformed against peers” in the previous 8 years
4.    The next phase of “Vision into action” would deliver further improved revenue growth, enhanced profitability and higher cash returns.
•    Long-term targets were revised upwards for organic revenue growth of 5-7% per annum, targeted margins of 16-18% by 2013, and operating cash conversion of 80-

90% by 2010.
•    These revised targets would deliver incremental profits of £200m in 2013, the equivalent of around £1.30 per share of added value

In addition, the document described Cadbury as “performance driven, values led”, claiming it obtained “sustainable value from our values”.  In particular, the company

highlighted its commitment to Fair Trade sourcing & the Cocoa Partnership, its strong environmental emission and waste targets, its standards on healthy foods and

nutritional labelling, and high employee workplace satisfaction benchmarks.  In an interview with the New York Times, Cadbury CEO, Todd Stizter suggested shareholders

had to factor in these values when deciding on the bid:
“It’s a culture that very much cares about how it conducts business.  Shareholders will have to judge whether that little bit of magic that makes us special … what

that’s worth.”
The defence document did not deal explicitly with the hope of a counter-bid from a friendlier acquirer (a ’white knight’).  Cadbury was, however, variously encouraging

Hershey, Ferrero Rocher, Kohlberg, Kravis & Roberts (KKR), and Nestle to consider a counter bid.  None of these bids materialized, however, strengthening Kraft’s

position with investors looking to realize value in the short term.
In the wake of the Cadbury Defence document, analysts believed Cadbury had put up a robust defence, and that Kraft would need to increase its bid to win: Sanford

Bernstein Research and Nomura both suggesting a target price of £9.00, Credit Suisse £8.50+, and  Kepler Capital Markets £8.00.   The NY times noted Cadbury’s line

“It is special and not just fodder for a … ‘low-growth’ conglomerate like Kraft. So far, shareholders seem to be supporting Cadbury. The question that analysts and

others have asked is the number of short-term investors – mainly hedge funds – that have taken up residence in Cadbury’s stock betting that a deal will get done.  It’s

a concern because Cadbury’s stock is riding high now in part on hopes that a bidding war will erupt; the stock could easily plunge if none does”
What happened?
In the wake of the defence document, the Cadbury board felt that they had strengthened the case for a higher price.  Unless they could persuade other bidders to join

in, however, Cadbury shareholders all knew that the current value of their shares was only underpinned by the Kraft offer itself.  The Cadbury defence team calculated

that, to realize the gain from the bid, the majority of shareholders would sell at a price of about £8.30 – either to a higher offer from Kraft, or to “short-term”

Hedge funds operating in the market.
At the start of the bid, only 5% of Cadbury shares were held by short-term traders.  CEO Stitzer had suggested that in early December short term investors and hedge

funds comprised about 15% to 20% of the shareholder base, “a relatively modest level” for such battles.  In the heat of the battle, and with limited information due to

disclosure limits on acquisitions under the Takeover Code, it is difficult to be certain of the scale of such infiltration.  In retrospect, however, it was noted that:
“The initial bid from Kraft sparked a 40% jump in Cadbury’s share price which many shareholders took advantage of by selling stock, a large proportion of which was

bought by short-term investors, such as hedge funds.  Indeed 44 days after the initial bid, 31% of Cadbury was owned by these short-term investors who were motivated

by the promise of a quick profit.”
However, the interest of hedge funds in the shares during this period was governed by Kraft’s perceived commitment to the deal.  As long as they believed that Kraft

would pay more to secure Cadbury, there was only limited downside risk for hedge funds and much upside potential in buying the shares.
As the battle raged, the role of the hedge funds attracted attention from the press and politicians, and was one of the aspects of the bid that was selected for

investigation later by the UK Parliamentary Committee.  One of the most vocal critics at the time was Vince Cable, Liberal Democrat opposition spokesman for BIS.

Cable wrote to Lord Mandelson, the responsible Government minister, stating that;
“This takeover ..raises broader questions about how hedge funds, out to make a quick buck, can destabilise even the most established companies”
In a later speech Roger Carr, Chairman of Cadbury, acknowledged that, in fact, much of Cadbury’s shareholding base was already held through the US stock market, and

“was simply not owned by a large number of mainstream UK institutions”.  In fact, 49% of Cadbury shareholdings were held in the US at the start of the bid.
As time wore on, and a counter-bid failed to appear, and due to the increasing participation of hedge funds, the defence document was more likely to produce a higher

Kraft bid than the maintenance of Cadbury’s independence.  On January 5th 2010, Kraft altered the composition of its bid, but not its overall price, to include a

further £0.60 of cash in place of new Kraft shares, thus reducing the balance of the acceptance risk for shareholders who might be reluctant to own shares in a

“lower-growth” US food conglomerate, or to hold US $ denominated shares.
In turn, Cadbury’s defence was boosted by the issue of its 2009 trading results on January 12th 2010.  Operating profit and perceived forward value had risen by 27% to

£808m, with like-for-like sales up 11% to £6bn.  These improved results focussed analysts attention back on the perceived “derisory” earnings multiple of the bid.

Chairman Roger Carr also focussed on the bid price, stating “our company value has grown”.  He refused, however, to put a value on the company, because:
“The minute you put a price into the market then it becomes the ceiling, not the floor.”
Price was settled on January 18th 2010 when Cadbury’s board agreed to recommend an increased offer of £8.40 per Cadbury share (with £5 of the consideration now being

paid in cash), together with an added special cash dividend of £0.10 per share.  This deal effectively valued Cadbury at about £11.5 billion.  Within two weeks, Kraft

was able to claim acceptances from 72% of the Cadbury shareholders, reaching the necessary level for the takeover.
Political and regulatory concerns – “Where’s Irene?”
The Cadbury takeover process caused consternation in the press, trade unions, politicians, regulators and general public in the UK.  So much so, that the Business,

Innovation and Skills (BIS) Committee of the UK’s House of Commons issued a report on 6th April 2010, which stated that:
“The Kraft takeover of Cadbury has proved to be an event which is likely to shape future public policy towards takeovers and corporate governance.”
The report was highly critical of the behaviour of Kraft, and bloggers gleefully described MPs as “fighting each other to lay into Kraft.”  MP Lindsay Hoyle, at one

point queries whether Kraft is “remote, smug, and … duplicitous.”
The measured tones of the Committee’s report focus on two issues primarily:
1.    Kraft’s promise during the heat of the takeover battle to reverse the decision of Cadbury to close its factory in Somerdale and move production to Poland again

reversed less than three weeks after Kraft took control of Cadbury.  UK Secretary of State for BIS, Lord Mandelson, commented that, “this will confirm the worst fears

of those who felt the takeover would result in job losses.”
During the hearings, MP Peter Luff questions Kraft’s official claim to “inspire trust and make a delicious difference…”, while his colleague, Lindsay Hoyle reminds

Kraft’s managers that Kraft closed the Terry’s confectionery plant after it bought the company in 1993, despite promising to keep it open.  The Committee found that

“Kraft’s initial indications that it would keep the (Somerdale) factory open, which it reversed after gaining control of Cadbury, heightened the public’s feelings of

mistrust towards Kraft.” The Committee’s formal conclusion was more measured but still opines that:
“Kraft acted both irresponsibly and unwisely in making its original statement … (and) has left itself open to the charge that either it was incompetent in its approach

… or that it used a “cynical ploy” to improve its public image during its takeover of Cadbury.”

2.    The Committee expressed their “extreme disappointment” that:
“Irene Rosenfeld, the CEO of Kraft Foods Inc. did not give evidence in person. Her attendance at our evidence session would have given an appropriate signal of

Kraft’s commitment to Cadbury in the UK and provided the necessary authority to the specific assurances Kraft have now given to the future of Cadbury.”

Indeed, during the proceedings, MPs simply demanded “where’s Irene?” and lambasted Kraft’s senior representative at the hearing, Marc Firestone, as an “apologist” for

her, and called her absence a “sizable discourtesy”.  The Daily Telegraph newspaper quoted Mrs Rosenfeld’s comment that:
“Attendance would not be the best use of my personal time.”

The UK’s regulatory Takeover Panel were asked to consider the statements by Kraft in relation to Somerdale to determine whether there had been a breach of the Takeover

Code which legally governs acquisitions in the UK.  Kraft was formally criticised for not meeting the standards of care in making their statement that was required by

the code which states:

“Each document statement made, during the course of an offer must be prepared with the highest standards of care and accuracy and the information given must be

adequately and fairly presented.”

These explicit reprimands for the most senior members of Kraft’s management team were widely reported in the UK.  Under pressure to show Kraft’s commitment, Mr

Firestone gave assurances that Kraft was committed to Cadbury and the UK in a number of specific areas:

•    Cadbury products would continue to be managed from the UK, and Cadbury’s brand names would not change under Kraft.
•    To honour the commitments made by Cadbury to the workforce at Somerdale, prior to its impending closure.
•    That there would be no further compulsory redundancies amongst manufacturing employees in the following two years.  Despite this assurance, the committee

contrasted Irene Rosenfeld’s mid-takeover battle statement that the “UK would be a net beneficiary” of jobs from the deal, against the reality of the Somerdale

closure, redundancies in Cadbury’s finance, legal and communications departments, and the lack of assurances to employees at Kraft’s own UK headquarters.   Kraft

senior management were urged to engage in a “meaningful dialogue” with unions and workforce at Cadbury “as a matter of urgency in order to start to restore trust.”
•    To accept its obligation to support Cadbury’s existing pension arrangements.
•    To maintain Cadbury’s Research & Development facilities in the UK.  Despite this, the Committee specifically noted Mr Firestone’s “careful use of words” and

that Kraft have made no “specific commitment to the current level of employment and world class skills in R&D at the centres of excellence”
•    To continue support for the ’Cocoa Partnership’, and uphold Cadbury’s undertaking to extend its use of Fair Trade.  Concerns were expressed at whether Kraft’s

sustainability engagement model placed Fair Trade principles at the centre of business in the way that Cadbury had been perceived to have done.
•    To confirm the funding for the philanthropic Cadbury Foundation for the next three years, and to adhere to Cadbury’s commitments to community engagement.
•    To uphold Cadbury’s commitment to the environment.
After taking evidence, the Committee wrote to Irene Rosenfeld asking her to endorse these undertakings that were in the public domain.  The report concluded that, “if

Kraft is serious about restoring its reputation in the United Kingdom, it is vital that it delivers on all of them.”

The Policy context of the takeover
The Parliamentary Committee report, having reprimanded Kraft and extracted the specific assurances noted above, went on to identify general policy concerns that were

part of the context of acquisition bids in the UK.  Their report, therefore, asked the government’s BIS Department to comment.  The government  duly did:

Issue noted by Committee    Response by UK Government
That Cadbury’s “world-class” Research and Development function and skills might be transferred to the United States, which would amount to a “serious breach of trust”.

The government has limited powers to force Kraft to supply information and comply with their commitments.
The future of Cadbury was ultimately decided by Hedge Fund managers, who purchased shares during the bid, concerned with short-term financial returns from a raised bid

and, therefore, a successful acquisition.  The Committee noted existing concerns in this area, but were “sceptical about the extent to which … informal engagement

alone can instigate fundamental change in institutional shareholder behaviour.”     The government quotes the Office of National Statistics (2008) that in 1969

institutional investors owned 24%, and foreign investors 7%, of UK quoted shares.  By 2008, these figures had increased to 40% and 41%, respectively.  The response

further notes that market liquidity has increased, and the speed of change of ownership (often through the influence of Hedge Funds) is much faster than 30 years

Noting the government’s possible review of legislation governing takeovers, the Committee recommended that, whilst the government avoided “protectionism against

foreign takeovers”, it nevertheless ensured that all takeovers (domestic or foreign) are conducted in the interests of the UK economy.    The government re-iterated the

belief that the UK benefitted (through inward investment) from “open markets” for corporate control internationally, and drew “no distinction” between foreign and

domestic ownership.
It was noted that “many takeovers …  fail even by the criterion of shareholder value – with serious implications for people who work for firms on both sides”.  The

government stated, however, “that does not mean we should return to the old-fashioned public interest test, which encouraged weak management to lobby for protection.”

Just where is Irene?
As to Kraft’s commitments to the BIS, in December 2011 a plan to shed 200 jobs at Cadbury’s Bourneville plant was announced.  At the same time, Kraft announced a £17m

investment in research at its designated sole “Centre of Excellence for Chocolate” globally, now located in Bourneville.  The BIS Committee revisited events in April

2011 to monitor Kraft’s commitments.  Concern was expressed at poor engagement between Kraft and the trade unions, and the perception that strategic decisions over the

Cadbury brands were made in Kraft’s European headquarters in Zurich.  More personal criticism also followed for Ms Rosenfeld:
“In a repeat of our predecessors’ experience, Irene Rosenfeld , … , refused to give evidence despite repeated requests from us that she should appear.  Neither that

refusal to attend, nor the manner of it, reflected well on Kraft, nor did Kraft’s persistence in failing to acknowledge the seriousness of the Takeover panel criticism

– criticism which by its gravity would alone have merited Ms Rosenfeld’s appearance before us, a committee of public scrutiny”
What happened – post acquisition
When the Cadbury board recommended the final offer of £8.40 to its shareholders, the value represented an
“impressive 50% premium on the value of Cadbury at the start of the bid … yielding the highest such premium in recent history in the UK.”
Warren Buffet reduced his holding in Kraft from 9.5% to nearer 6% in the aftermath.  His comments reflected the belief that bidders often overpay to the detriment of

their shareholders (often called the ’winner’s curse’).
In the immediate aftermath of the deal there was speculation Kraft would suffer the “winner’s curse” (of having paid too much for synergies that would take much longer

to deliver, or of ignoring the real costs of post-acquisition integration).
By Kraft’s fourth quarter results for 2010 commentators believed that shareholders were still “wondering whether they bit off more than they could chew when they put

up £11.5bn for Cadbury last year.”
Net profits had fallen 24% to $540m in the quarter, reflecting the scale of integration costs, and a ‘disappointing’ 2.2% rise in Cadbury’s like-for-like sales, well

behind the 5% sales growth that Cadbury had posted in its last period of independence.  The deal had not yet shown itself to be the transformational move that Ms

Rosenfeld staked her reputation on. Kraft’s next move to transform itself was less expected.
On 4 August 2011 Kraft announced its intention to split into two separate corporations. Kraft said its two businesses:
“Now differ in their future strategic priorities, growth profiles and operational focus.”
The lower growth North American grocery foods business was to include brands such as Kraft and Philadelphia cheeses, and Capri Sun, with revenues of $16bn.  At the

same time, a much more focussed globally spread snacks and confectionery business (including Trident gum, Oreo cookies, and Cadbury), would have estimated revenues of

$32bn.  Within the confectionery arm of the global snacks business, Cadbury brands represented over 80% of revenues.  The rationale for the global snacks business

remained those that drove the Cadbury acquisition: to move into higher growth segments, and to increase footprint and “white space” synergy possibilities for iconic

brands (see Appendix 2) in fast-growing emerging markets.  When interviewed on by Bloomberg TV on September 16 2010, Ms Rosenfeld re-affirmed that Cadbury was:
“A critical piece of the puzzle we have been trying to complete.”
The demerger took place on October 1st 2012 when the North American grocery foods business started trading as Kraft Foods Group Inc., whilst the global snacks business

(including Cadburys) became Mondeléz International, with Ms Irene Rosenfeld firmly at its helm.  A list of Mondeléz ’heritage’ brands is shown in appendix 2.

Mondeléz’ principal brand launch colour was the same distinctive shade of purple as Cadbury had used for over a century (see figure 2).

Figure 2 – Mondeléz brand colours

Appendix 1 – Timeline of Kraft’s bid for Cadbury
28 August 2009    Irene Rosenfeld, Kraft Chairman and CEO meets Cadbury chair Roger Carr to outline a takeover deal in cash and shares which values Cadbury’s shares at

£7.55 each (£3 in cash, plus 0.2589 Kraft shares for each Cadbury share).
7 September    The London market is alerted to an offer of £7.45 per share (£10.2 bn for the company), which is swiftly rejected by Cadbury’s board.
12 September    Carr repeats his rejection in a letter to Irene Rosenfeld, with the comment that joining Kraft’s “low growth conglomerate business” was an “unappealing

16 September    Warren Buffet, CEO of Berkshire Hathaway (Kraft’s largest shareholder with 9.4%) warned the group not to overpay for Cadbury.
21 September    Cadbury writes to the UK Takeover Panel asking them to request a formal offer from Kraft, under the “put up or shut up” rules, which would put a

deadline on Kraft’s offer to be completed.
25 September    Cadbury CEO Todd Stitzer says Kraft’s offer does not make strategic or financial sense.
30 September    Takeover panel rules that Kraft has until 1700 on November 9 to make a formal offer (“put up”), or walk away from the bid (“shut up”) for six months.
21 October    Cadbury posts strong third quarter results for 2009, with sales up 7% and margins increasing. Cadbury’s shares fail to react, amid market suggestions

that another bidder is unlikely to come forward.
3 November     November results disappoint with weaker than expected results, and a cut in full-year sales forecasts.
9 November    Kraft meets the deadline, formalizing a bid of £3 in cash and 0.2589 Kraft shares.  Due to the intervening decline in Kraft shares, this now values

Cadbury shares at £7.17 (£9.8 billion for the company).  Cadbury rejects this as “derisory”
18 November    Italy’s Ferrero Rocher and US Hershey admit they are considering counter-bids for Cadbury.  Both companies are purer confectionery plays than Kraft.

There are suggestions that KKR may back a joint bid from both companies.
23 November    Cadbury share rise to all-time high of £8.195 amid speculation of a bid from Nestle.
4 December    Kraft posts its formal offer document to Cadbury shareholders, which triggers a 60 day deadline to complete the deal under those terms.
14 December    Cadbury issues its formal defence document, raising its growth targets (sales and margins) further, promising higher dividends, and reminding

shareholders of the possible counter-bids.
5 January 2010    Kraft “sweetens” its bid for Cadbury by altering the bid to offer a further £0.6 in cash, whilst withdrawing an equivalent value of Kraft shares – the

overall bid value stays the same, but risk of the offer to Cadbury shareholders is reduced.
6 January    EU commission rules there are no significant competition grounds to review.
7 January    Cadbury meets Hershey informally, to encourage a friendly offer.
12 January    Cadbury posts a further defence, reporting robust trading in the fourth quarter ahead of its own targets.
18 January     Cadbury board recommends improved offer from Kraft, offering shareholders the equivalent of £8.40 per share (£5 in cash and 0.1874 new Kraft Share),

with an extra £0.10 special dividend.  Company is valued at just under £12 billion.
2 February    72% of Cadbury shareholders have approved deal.

Appendix 2–Examples of Mondelez International 100+ Year Old Brands

Brand Trademark     Country of Origin     Year
Barnum’s Animals     United States     1902
Bassett’s     England     1842
Cadbury     England     1824
Canale    Argentina     1875
Christie     Canada     1853
Cote d’Or     Belgium     1883
Dentyne     United States     1899
Figaro     Czech Republic/Slovakia     1896
Fontaneda    Spain     1881
Freia    Norway     1898
Fry’s     England     1761
Gallito    Costa Rica     1909
HAG     Germany     1906
Hall’s     England     1893
Jacobs     Germany     1895
Kraft     United States     1903
LU     France     1850
Maxwell House     United States     1892
Milka    Switzerland     1901
Nabisco     United States     1901
Opavia    Czech Republic/Slovakia     1840
Oreo     United States     1912
Pavlides    Greece     1841
Peek Freans    England     1857
Petit-Beurre    France     1886
Philadelphia     United States     1880
Saiwa    Italy     1900
Suchard    Switzerland     1825
Terry’s     England     1767
Toblerone    Switzerland     1908
Vizzolini    Argentina     1906
Ygeias    Greece     1863
Source: Mondelez International website December 2012

Task – with reference to the case study, you should answer the following questions:
1.         With reference to the case study, provide an example of a core theme or
issue which clearly illustrates a link between theories or concepts drawn from at least
two pre-requisite modules.

2.    What is the company strategy with regard to mergers and acquisitions? Does this strategy make sense? From an organizational perspective, what is required for

this strategy to work effectively?

3.         How would you describe the Kraft strategy at the corporate level? Are they pursuing
a global strategy, a multidomestic strategy an international strategy or a transnational
strategy? You should provide clear evidence in support of your reasoning.

4.    Does this overall strategy make sense given the markets and countries that Kraft participates in? Why?

5.         Through your own research on Kraft, identify appropriate performance indicators
(both financial and non-financial).
Once you have gathered relevant data on these, undertake a performance analysis
of the company over the last five years. What does the analysis tell you about the
success or otherwise of the strategy adopted by the company?

6.    Is Kraft’s management structure and philosophy aligned with its overall strategic            position?


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