Cadbury’s succumbs to Kraft’s relentless attacks

By Branko Brkic 20 January 2010

Cadbury’s caused a lot of cows to be milked over the last 185 years or so. And long ago would have been unavoidably complicit in slavery, despite its Quaker roots. But times have changed, and so did the iconic British chocolate maker, joining a list of premium UK brands - Boots, Cazenove, ICI, Jaguar Land Rover, P&O, and Pilkington – owned by foreign lands and in foreign hands.

There’s no good reason Cadbury sold out to US-based Kraft for $19 billion, the world’s second-largest food group after Nestle, other than to line the pockets of its biggest shareholders in hard times. Its revenues were good, its profits were fine, and sales in the UK, India and South America continued to drive results.

But it sure helps Kraft, according to chief executive Irene Rosenfeld, by diversifying its foods portfolio, accelerating long-term growth and delivering highly attractive returns.

Kraft has 98,000 employees at 168 plants worldwide, pulling in revenues of $42 billion in 2008. It’s owned by Altria (once Philip Morris), and has absorbed Nabisco, Danone, Maxwell House instant coffee, Philadelphia cream cheese and Swiss chocolate brands Milka and Toblerone.

So, people are asking why Britain has denuded itself of yet another major home-grown manufacturer, famous for its Cadbury Dairy Milk chocolate, Trident and Halls brands. The answers are thin on the ground. The best guess is something Gordon Gecko would implicitly understand – fear and greed. Britain has been unduly battered by the global recession, so weary investors would have seen an opportunity to cash in at a premium when the Americans came calling with a better offer.

Rosenfeld upped the cash component of the bid after Warren Buffet, whose holding firm Berkshire Hathaway owns 9.4% of Kraft, said Kraft shares were undervalued. He was right, as usual, and they ticked up after the firm forecast that 2009 profits would be even better than expected.

The allure of cash must have been just too much for some of Cadbury’s biggest UK shareholders – Legal & General, Standard Life, Scottish Widows and Barclays – and would have felt like a glass-and-a-half of Red Bull to these beleaguered City anorexics, after Kraft raised its offer from $16.7 billion.

Cadbury fought hard to remain British and independent, fending off Kraft’s earlier bids as doing no justice to the iconic brand. The parochial American candy maker, Hershey, also saw an opportunity to spread its wings globally. But Cadbury’s market capitalisation of some $18 billion against the US company’s $8.2 billion would have been a repeat of AOL’s merger with Time Warner. In other words, it never could have worked.

Of late, the time was right for Kraft to up the ante. The pound has dropped 16% in value against the dollar in past years. If the company had to pay in euro, that would have added some $3 billion to Cadbury’s value, raising the level of Kraft risk. By striking now, it gets to be a real candy maker.

By Mark Allix

Read more: Guardian, The Telegraph, BBC, Reuters, Guardian, The Telegraph,, The Economist, Business Week


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