Kraft acquires Cadbury

After a fierce resistance for a month, Cadbury has finally accepted its sweetened takeover by Kraft Food Inc. An UK company got acquired by an US company. The friendly takeover marks the end of a prolonged and bitter battle for control of Cadbury, which is steeped in history and nostalgia -- and whose products are loved by millions of sweet-toothed customers worldwide. The new firm will create a global market leader with over 40 confectionery brands each with annual sales of more than $US100 million . The deal amounted to $ 19.6 billion (11.7 billion pounds) with 60% in cash and rest in stocks of Kraft. The acquisition took place at $13.78 per share. This deal made Kraft as the biggest candy company replacing Mars Inc and makes Krafts CEO Irean Rosenfelds, as one of the strongest woman in  United States of America. A takeover of Cadbury would end more than 180 years of history for the colourful maker of Dairy Milk chocolate bars and Trident chewing gum. The group began life as a small grocer's shop in Birmingham, central England, in 1824. To put this deal in words of Krafts CEO Irean Rosenfelds “this deal provides both immediate value certainty and upside potential”. But the share market reacted in opposite direction by dropping the Kraft’s share prices by 2.5 percent.

The deal, one of the largest transnational takeovers since the credit crunch, is further sign that food companies are seeking to gain scale by combining, after Mars bought William Wrigley Jr. Co. in 2008 for $23 billion.  The initial offer came in September valued at 10.2 billion pounds.  After Cadbury turning down the offer, Kraft reworked the deal by increasing the cash component by selling its Pizza division to Swizz rival Nestle for 3.7 billion dollars. Meanwhile, US chocolate maker Hershey had also been considering a counter-offer for Cadbury, the Wall Street Journal reported last week, adding that it planned to bid at least 17.9 billion dollars.

The Cadbury had total assets of $13 billion with the Current asset of $3.8 billion.  Of the total assets $ 2.57 Billion dollars were intangible assets. The total receivables amounted to $1.6 billion.  The total liability was $7.94 billion with long term debt of $2.34 billion.  The working capital was negative $3.4 Billion.  Though in the last quarter it showed some positive result, the company was underperforming for last couple of quarters. 

This deal gathered much criticism from investors, employees union and many others in Uk. The main question was will it be able to provide the same taste of Cadbury to all of its stakeholder.  Warren Buffet, whose Berkshire Hathaway Inc. is Kraft Foods Inc.'s biggest shareholder, said the maker of Oreo cookies paid too much to clinch a deal for Cadbury PLC. Mr. Buffett, on the CNBC cable channel, expressed confidence in Kraft Chief Executive Irean Rosenfeld but said, "I've got a lot of doubts about the deal….If I had a chance to vote on this, I'd vote no."  When asked whether he plans to sell his nearly 10% stake in Kraft, Mr. Buffett paused a moment, then said, "That gets expensive." He added: "If I don't like what's going on in government, it doesn't mean I have to leave the country." Billionaire investor William Ackman  joined Warren Buffett, Kraft's biggest shareholder, in saying Kraft risked diminishing the merits of a Cadbury takeover by issuing too much stock to pay for it. Earlier Kraft's takeover of Cadbury had also been criticized by British trade unions who urged the UK government and the EU to block the bid. Unite, the UK's largest union said a merger will destabilize the company and hit future returns to shareholders. Outside Cadbury's plant in the Birmingham suburb of Bourneville on Tuesday some workers expressed their fears about possible job losses.  One of the employee, added: "Nobody really knows what is going on or what this might mean in terms of job losses, but inside that factory there are a lot of people who are very, very worried about the future -- the future of the company and their own future, their jobs and their families. The deal was also criticized because this deal was perceived by many as ride of US companies over UK companies, taking most the job out from UK. 

Though it is assured by Irean Rosenfeld to preserve the values of Cadbury and to preserve the job of 45000 employees of Cadbury across the world, time will say how much value addition Kraft would make using the assets of Cadbury and how much return it can generate. Question is will the strongest women in US, Irean Rosenfeld, transform Cadbury into a milking cow for all its stakeholders?