Analysis of Krafts Takeover of Cadbury

Analysis of Krafts Takeover of Cadbury Overview Of Both Companies Cadburys origins date back to almost two centuries when it was founded by John Cadbury who started the business by selling cocoa and tea in Birmingham, UK. Later he expanded by starting a line of beverages after a merger with Indian Schweppes changing the company name to Cadbury Schweppes (Chinn 1998). Successful product developments and launches have enabled Cadbury to boast of an extensive confectionary line consisting of Cocoa Essence, Easter Eggs,Milk Chocolate, Cadbury Fingers, Dairy Milk, BournevilleChocolate, Milk Tray, Flake Creme Egg, Crunchie, Picnic, Curly windy, Wispa boost, Twirl and Time Out (Cadbury 2010). Kraft, on the other hand, is a US company about a century old, which started off as a door to door cheese business but expanded into other confectionary items through many takeovers previously such as Ritz Crackers, Nabisco (Oreos) and Phenix Cheese Corporation (Philadelphia Cheese) to achieve success (Smith 2009). It is second in terms of sales and popularity in the confectionary industry with annual revenues of $42 billion, operating in more than 150 countries (Kraft 2008). The Idea Of A Takeover Due to recessionary times following fall in sales, many companies in the confectionary industry recognized the potential of merging with their competitors to become competitive and enjoy economies of scale (Mauboussin, 2010). Cadbury had continued to be a strong performer in the confectionary industry and shown steady performance and growth in light of the turbulent economic times. Much of Cadburys growth was due to its presence in emerging global markets. Kraft was attracted to Cadbury due its strong performance during the economic crisis. This led to Krafts proposal to Cadbury of a takeover. The initial offering of $16.3 billion or 740pence per share by Kraft to Cadbury was outright rejected as derisory and an attempt by Kraft to take over Cadbury for cheap. Cadbury has had strong brands whose icons are etched in the minds all over the world, an impressive category line and extensive worldwide consumer base. Successful financial overview and steady business model reinforced Cadburys belief that it should be an independent company. Krafts bid did not come remotely close to reflecting the companys true worth. Kraft proposed another bid shortly: This comprised of an offer of  £10.1 billion ($17 billion, same terms as the first bid in September-300 pence in cash and 0.2589 Kraft shares per Cadbury shares. The closing price of 9th November reflected the bid valuation of Cadbury at 710 pence which was lower than the share price of 761p on that day. Krafts share price: $26.53; Exchange rate (as agreed): $1.66 / GBP. Ratio: 0.2589 Kraft shares per every Cadbury share (26.53/1.66 * 0.2589 =  £ 4.133 + 4.13 =  £ 7.13).This was less than the price of Cadbury on that day and even the initial level of  £ 7.45. Cadbury rejected the offer on the basis of undervalued Cadbury which was now of a lesser value. It was in fact even lower than the current Cadbury share price. The Cadbury chairman said:â€Å"Under your proposal, Cadbury would be absorbed into Krafts low growth, conglomerate business model, an unappealing prospect which contrasts sharply with our strategy to be a pure play confectionery company.† The hype created by rumors of takeover figures led to exciting speculations .Media reported Ferrero to be considering a rival bid. Hersheys confirmed its own interest for same purpose. There were not only speculations of a joint bid but also of Kohlberg Kravis Roberts Co. joining the bidding race. All this favored Cadbury whose share price witnessed new highs. Hersheys and Ferrero would struggle to bid alone and only their combined offer could beat Krafts offer. On January 18, Kraft finally managed to take over one of the worlds second largest confectionery manufacturer in a hostile bid of an enormous 11.5billion (US$19.5billion). This deal will be remembered in history as one of the largest transnational deals, especially in the aftermath of credit crunch. After four months of continuous resistance, Cadbury shareholders agreed to Krafts offering of $19.5 billion, (840 pence per share). This was agreed upon with the spirit of creating the worlds largest confectioner. This consisted of 500 pence in cash per share and the remaining amount paid to Cadbury shareholder in the form of Kraft shares. The shareholders had the power to decide the mix of amount they wanted in cash and shares.   According to estimations, the finals offer presented a multiple of 13 times Cadburys earnings in 2009 (after interest, taxes and debt were paid). The high bid price overruled the threat of Hersheys or Unilever offering a price for the same strategy, that is take over. The only rival left   was Nestle which too was reduced significantly when Cadburys Director signed the agreement that if Cadbury were to change its mind about the takeover, it would pay a handsome penalty for it, hence such a situation arising became highly unlikely. The Kraft management, led by Irene Rosenfeld also assured that Kraft had a great respect for Cadburys brands, employees and reputable history and therefore the employees of Cadbury would  Ã‚   do well in the new environment. Also, she verbally assured that under the new agreement the previous contractual rights of the employees would remain the same as before. Market Structure Of The Two Companies Cadbury and Kraft are both multinational operations with activities in both developed and developing countries. Cadbury is however the market leader in UK and Irelands confectionary where consumers have a liking for British chocolate containing vegetable oil having a richer taste in milk and also sweeter as opposed to continental chocolate having cocoa fat content; hence Kraft has a low share in such markets. Also, Cadburys strong standing in the Indian (Schweppes) and North American Markets was cleverly identified by Kraft who wanted to tap it and exploit under its own name now to add to its success story. Advantages Of The Takeover For Kraft. It was the biggest cross-border acquisition this year. Such a deal clearly pushed Kraft as number 1 dealer in confectionary. A merger allowed Kraft to gain a footing in the fast growing chewing gum category. Kraft management believes that the combination of the two companies is both a strategic as well as complimentary fit, boasting a portfolio of over 40 confectionary brands each having the ability to yield annual sales of over $100 million. A combination of Kraft products like Toblerone, Oreos and Ritz crackers with Trident gum and Dairy Milk chocolates from Cadbury would result in $625 million annual pretax cost savings on annual company costs of research and development, advertising, branding and procurement. There would also be a significant level of revenue synergy ($50 billion annually) that would subsequently result in higher earnings per share. After the takeover, Kraft would have a greater ability to compete with the giant Nestle on confectionary grounds by increasing its market share in Britain and enjoying the benefits of Cadburys strong geographical networking in Asia. Krafts growth prospects would brighten through access to new brands particularly in the confectionary department along with new distribution channels for the existing products which are outside US. These constitute about one third of the market in developing countries such as Africa, China and India. Advantages Of The Takeover For Cadbury Cadbury would profit from Krafts extensive distribution network around the globe. Cadbury had been vulnerable to a takeover ever since it demerged its US soft drinks business. This high takeover bid was an attractive opportunity to do away with such a fear. A combined Kraft and Cadbury would significantly expand the global reach of both businesses and create synergies worth in the region of $625m. Since a stand-alone Cadbury â€Å"had limited opportunities for value creation,† agreement to the contract for takeover seemed like a wise decision. Disadvantages Of The Takeover Along with the obvious benefits come the many challenges and ethical issues. These are primarily high debt issues and employee layoffs.   The high debt position of Kraft has further worsened with the takeover as funds were borrowed to pay the Cadbury shareholders a higher yield. Kraft also sold off its frozen Pizza line in order to make the takeover happen. The unions are worried that the jobs of hundreds would be at stake (estimated 9000plus) as Kraft would try to reduce costs to operate efficiently and pay back its debts. The company has also not given any formal assurance that it would protect 4500 UK jobs. Also it is a known fact that when a company needs to cut costs, jobs and job conditions suffer. The British Government also opposes takeovers of British companies by foreign giants as it nearly always leads to job losses. This takeover too was met with resistance including Gordon Browns advice and insistence against its happening but the shareholders overruled it and still went ahead with the deal. According to a Union head, â€Å"This is a very sad day for U.K. manufacturing. A successful, iconic, independent U.K. brand will now be owned by a giant company with massive debt.† In the face of such a scenario, even if employees are laid off it will not affect those who are rich and/ or are major shareholders in the company.   For example, if the chairman, Roger Carr gets axed, he would still walk away with $30 million! This proves that it is the low level managers and employees who feel the vulnerability of such an action. According to David Bailey, professor at Coventry University Business School; Serious questions need to be asked about Krafts intentions†¦ Kraft already has a track record of cutting production and moving production abroad†¦ Theres no guarantee that theyll keep production in the UK in the long run. When employees of both companies were interviewed to ask about their view points, most expressed fear and uncertainty. They were resistant to the idea of such a large company where their positions and titles might be reduced or lost due to the massive structure. They are also despondent of their lack of involvement in this decision. According to one employee, â€Å"nobody really knows what is going to happen, but it is definitely not going to be pleasant.† A disadvantage for Krafts shareholders of the takeover is that they now mentally feel less financially strong as assets were being sold and the entire pizza production plant worth $3.7 billion was sold to raise money for the takeover. The Market Theories Being Practiced The Market theory witnessed in such a situation is a combination of globalization practiced over countries and between countries of the two companies having their origins in US and UK. The practice generated by Kraft, in this case, was that of a hostile takeover, where the big company used its aggressive stance on growth to acquire a smaller company. This is a very certain way to achieve company growth. In the event of a significant bid for shares, the shareholders are likely accept the offer but the board of directors more likely to resist. This is exactly what happened with this takeover too, however due to low bid price initially, the shareholders were not inclined towards the idea until the bid became impossible to resist. Some Kraft shareholders too were also strongly against this idea, especially Warren Buffett who felt that Kraft was overpaying Cadbury when there was no need for Cadburys products in Krafts portfolio for long term growth. He expressed his desire of wishing to stop the takeover if he could. Conclusion Objectively speaking, when takeovers of such a   nature occurs; Two large companies come under one brand name, with the larger one burdened with high debt, the risk of business coming down due to conflicts in operation strategies in the near future are highly likely to occur. These are not realized when the benefits of the takeover are being discussed and third parties involved in its happenings are proactive as they too are making money. These parties are usually the deal makers, lawyers and other advisers who earn their commissions irrespective of whether the deal is eventually a success or a failure. Referencing Chinn, C. The Cadbury story: a short history (1998). Brewin Books. Shwartz, S.,(2005).HosTorScience Fiction, reprint, Tom Doherty Associates Faulkner, D., (2002)Strategy, Taylor and Francis Griffin, R.,(2009)Management,5,Houghton Mifflin Slater, R., (1999), illustrated, Beard Books. Hasian, Jr, 2008, Journal of Communication Inquiry, 32,249-270 www.kraftfoodscompany.com www.cadbury.co.uk www.unitetheunion.com www.ft.com www.cnn.com/2010/BUSIN Smith, A.F., Eating History: Thirty Turning Points in the Making of American Cuisine. (2009) Columbia University Press, 286-92. Maboussin, M. J. Surge in the Urge to Merge. (2010). Legg Mason Capital Management.

Three Challenges That Might Arise When Writing a Paper

Poor research skills, and choosing an interesting topic. To overcome the vocabulary issue a thesaurus is helpful, for research skills, practice reading and read about many different subjects. To come up with a good, interesting topic, brainstorm and ask friends and classmates for input. Three challenges you may encounter while writing a paper; 1. Not understanding the topic 2. Not knowing where to start 3.Not knowing how to make your paragraphs cohesive. I can give you ideas of some challenges that might arise when writing a paper, but we don't write essays or paragraphs for people here. [ Some challenges that arise when writing are: deciding on a thesis, finding a sufficient amount of reputable sources, staying on topic throughout the paper, finding one's own spelling, punctuation and grammatical errors, varying sentence structure in order to make the paper flow, and staying on task.Some challenges include: Not having a strong voluntary, Poor research skills, and choosing an interes ting topic. To overcome the vocabulary issue a thesaurus is helpful, for research skills, practice reading and read about many different subjects. To come up with a good, interesting topic, brainstorm and ask friends and classmates for input. Three challenges you may encounter while writing a paper; 1. Not understanding the topic 2. Not knowing where to start 3.Not knowing how to make your paragraphs cohesive. I can give you ideas of some challenges that might arise when writing a paper, but we don't write essays or paragraphs for people here. [ Some challenges that arise when writing are: deciding on a thesis, finding a sufficient amount of reputable sources, staying on topic throughout the paper, finding one's own spelling, punctuation and grammatical errors, varying sentence structure in order to make the paper flow, and staying on task.

Mgt 401 Week 2 Essay

Business Model Comparison Most small businesses require some outside funding. Not many entrepreneurs have enough personal capital to open and maintain funding for a business. To attract investors and attain partnerships, a business owner should consider a business model necessary. This paper will compare two restaurant businesses, identify the business model and forms of ownership for each business by completing a Comparison of Business matrix, describe benefits by building a sustainable competitive advantage, and giving advantages and disadvantages of each business ownership. Great introduction. You state the purpose and what you plan to address! McDonald’s restaurants are among the most recognizable in the world. Their quintessential arches can be identified in almost every country. This fast-food mogul is one of the biggest and most profitable corporations in the industry (what industry? Make sure you provide information on the restaurant industry). Serving as a polar opposite is Datillo’s restaurant in Hemet, California. This small restaurant is known as the only fine dining experience in town and has only one location. The companies both represent the polar opposites of forms of business ownership. Comparison of Businesses Matrix |Comparison Items |McDonald’s |Datillo’s | | |Fast food, low quality, low prices. |Sit-down restaurant, high quality, and | | | |mid-level prices | |Value Proposition |â€Å"We place the customer experience at the core|â€Å"Welcome home, here you can enjoy a casual | | |of all we do† |lunch or dinner in a warm, festive | | | (â€Å"Values In Action†, 2013). |atmosphere.† | | | | (â€Å"Datillo’s Ristorante: About Us†, 2013). | |Target Market |All Markets, all classes |All Markets, all classes | |Value Chain |Attractive to people looking for inexpensive |Attractive to people looking for a fine dining| | |and fast food. Fast growth rate. |experience. Can compete with rivals on quality| | | |and service. | |Revenue |In 2012 gross income was $27.6 Billion. |In 2012 gross income was | | | |$459,000. | |Position |More opportunity for expansion and |Unique cuisine (niche) offers competitive | | |competitive advatange |advantage, less opportu nity for expansion | |Competitive Strategy |Serving food at the lowest possible price |Only fine dining in town. Authentic Italian | | |while reserving as much quality. Also reliant|food, very high quality products. | | |on nostalgia to bring customers back. | | |Form of Ownership |Corporation: When a business is owned by |Sole Proprietorship: a business that is owned | | |multiple people and run by lower-lying |and managed by one person. | | |managers and employees. | | Good information! Benefits To Building A Competitive Advantage When evaluating the benefits of each business, it is important to consider the size of each business. As an example, both sole proprietorships and partnerships are relatively small in size and may perhaps provide more personalized service to each of their clients. In many businesses, customers appreciate personalized service and may in turn hire small businesses for that service. On the other hand, a larger business, like McDonald’s, typically is composed of more resources and may offer the prospective customer a lower price. Another competitive advantage of a smaller business, like Datillo’s, is the ability to provide customers with a higher level of quality. Because customers of small businesses deal more closely with a ‘tight nit’ group of employees, the quality and service provided to the customer is much greater than a larger corporation composed of numerous locations. Both small and large businesses each have distinct advantages that enable them each to thrive. Although some customers may appreciate the more personalized service of small businesses, others may prefer a lower price and a larger name brand. Make sure paragraphs are a minimum of 3 sentences! Advantages and Disadvantages of Business Ownership McDonald is known for the quality the restaurant serves, and the opportunities the McDonald restaurant offer. McDonald’s has been number one in the fast-food market in the United States, and the most memorable brands, products, and mascots. McDonald’s franchise owner can be safer than lesser-known franchises because the McDonald’s name and operational model comes packaged with its own legion of loyal customers and industry-best practices for restaurant success. A franchise store such as McDonald’s can help business owners to achieve financial independence by associating with an international powerhouse that can almost guarantee a certain degree of success. Another advantages of McDonald have is that McDonald’s cis that they can invest behind any market research it does and eliminates the need for a franchisee to do expensive research. Although McDonald it has its advantages, there are disadvantages associate with McDonald’s. The restaurants have been target in a battle against what has been term the obesity epidemic, casting McDonald’s outlets along with their owners in a highly negative light in the media, and their communities. McDonald’s and its peers respond to this negativity by attempting to add healthy options to their menu, but the stigma is likely to linger. One of the advantages Dattilo’s Restaurants is that the restaurant’s offers an extensive classic Italian menu, comprised of items made from locally sourced premium quality ing redients, cooked to order for each guest. The restaurant uses authentic and healthy Italian accent. Dattilo’s also offers Internet special discounts and family gathering for its customers (Dattilo’s Ristorante, 2013). The disadvantage is Dattilo’s restaurant location are limited, the restaurant has not expanded their services statewide. Confusing sentence, consider rewording! Conclusion A business model is one essential factor in the success of a business. The business models of McDonald’s and Dattilo’s are much different but both successful. McDonald’s is a major corporation with thousands of locations and Dattilo’s with just one, but both have been in business for many years. There are advantages and disadvantages of both types of businesses, but regardless building a sustainable competitive advantage is achievable. The two restaurants compared in this paper offer different levels of quality, service, and cuisine, thus requiring a different level of ownership that each business model relays. References Datillo’s Ristorante: (2013).About Us, 2013, rRetrieved from: http://dattiloristorante.com/?page_id=8 McDonald’s: Values in Action, 2013, retrieved from: http://www.mcdonalds.com/us/en/home.html |Content and Organization |Points |Comments: | |70 Percent |Earned: 6.5 | | |Profile of a Small Business (Week 2) | |All key elements of the | | | |assignment are | | | |covered†¦good job! | | |Y | | | | | | | | |You clearly identify the| | | |two businesses but make | | |Y |sure you clearly | | | |identify the industry. | | | | | | |N |Good job explaining the | | | |advantages and | | | |disadvantages. | | |N | | | | |Make sure you provide | | | |academic and business | | | |research to validate | | | |your thoughts and | | |Y |opinions. | | | | | | | | | | | |Your introduction | | | |clearly states your | | | |purpose and what you | | | |plan to address. | | |Y | | | | | | | | |Your conclusion needs to| | | |review the major points | | |Y |of the paper- good job | | | | | | | | | | | | | | |Y | | | | | | | | | | | |Y | | | | | | | | | | | | | | | |Y | | |All key elements of the assignment are covered in a substantive way. | | | |700 to 1050 word count | | | |The content is comprehensive, accurate, and/or persuasive. | | | |The paper develops a central theme or idea, directed toward the appropriate | | | |audience. | | | |The paper links theory to relevant examples of current experience and industry | | | |practice and uses the vocabulary of the theory correctly. | | | |Major points are stated clearly; are supported by specific details, examples, | | | |or analysis; and are organized logically. | | | | | | | |Identify an industry with which you are familiar, and then choose two | | | |businesses in that industry. | | | | | | | |Identify the business model and forms of ownership for each business, then | | | |complete the Comparison of Businesses Matrix. | | | | | | | |Describe benefits associated with each business by evaluating how they built a | | | |sustainable competitive advantage. | | | | | | | |Explain advantages and disadvantages of each business’s ownership. | | | |The introduction provides sufficient background on the topic and previews major| | | |points. | | | |The conclusion is logical, flows from the body of the paper, and reviews the | | | |major points. | | | | | | | |Readability and Style |Points Earned: 1.5 |Comments: | |15 Percent | | | | | |Great job†¦your sentences| | | |are well-written and | | |Y |error free. | | | | | | |Y | | | | | | | |Y | | | | | | | |Y | | | | | | | | | | | |Y | | |Paragraph transitions are present and logical and maintain the flow throughout | | | |the paper. | | | |The tone is appropriate to the content and assignment. | | | |Sentences are complete, clear, and concise. | | | |Sentences are well-constructed, with consistently strong, varied sentences. | | | |Sentence transitions are present and maintain the flow of thought. | | | | | | | |Mechanics |Points |Comments: | |15 Percent |Earned: 1 | | | | | | | | |Research adds validity | | |N |to your thoughts and | | | |ideas. Continue to | | | |expand your use. You | | |N |provide no business | | | |research or materials | | |N |from class. | | |Y |Ensure paragraphs are | | | |complete thoughts and | | |Y |flow into each section. | | | | | | | | | | | |Please continue to | | | |review the CWE and APA | | | |guidelines. | |The paper, including the title page, reference page, tables, and appendices, | | | |follow APA guidelines for format. | | | |Citations of original works within the body of the paper follow APA guidelines.| | | |The paper is laid out with effective use of headings, font styles, and white | | | |space. | | | |Rules of grammar, usage, and punctuation are followed. | | | |Spelling is correct. | | | | | | | | | |Comments: | | | |Great work team! | | |Points earned: |9 |

Martin Luther King Jr.s Letter from Birmingham Jail Essay

1. The reason King was in Birmingham is because he was invited there as the president of the Southern Christian Leadership Conference, and it was his duty to protest injustice and spread freedom through a nonviolent program. As King was invited by one of his affiliates at an official organization, he is not an outside, but more akin to an important guest. Even if the invitation had not occurred, it was still his duty, as the prophet of the â€Å"gospel of freedom† just as it was Paul’s duty to spread the gospel of Jesus Christ. 2. King’s famous quote means that those who have ignored the issues of Birmingham have ignored an issue that concerns the entire world. Segregation and the intense racism felt in there will affect the entire†¦show more content†¦If one see’s the issue of segregation as something that is not truly causing tension, than negotiations cannot be fair and reasonable. As such, King creates tension so that there is a direct need for positive changes. 6. An example in American history that represents the â€Å"painful experience that freedom is never voluntarily given by the oppressor† is the American Revolution. Under King George II’s taxes and government restrictions, the American people felt oppressed and as though their cries for freedom were being ignored. Tensions between the British and the Americans increased until there was a war for American freedom. Also, the Native American people were never voluntarily given freedom, they fought very hard for it after the American people put them through the hell of the Indian Removal Act and several other oppressive measures. 7. By not allowing people into certain places based on the color of the skin goes against Article 1 on the UDHR, which is that all are born of equal dignity. Also, by not calling African American’s be their proper name goes against Article 1 as well. Article 5 of the constitution states that no one shall be subjected to torture or to cruel, inhumane punishments- this does against the beating cursing and killing of AfricanShow MoreRelatedMartin Luther King Jr. s Letter From A Birmingham Jail1157 Words   |  5 PagesMartin Luther King Jr.’s â€Å"Letter from a Birmingham Jail† is directed towards the clergymen, although America is his audience, King had come to Birmingham to address the segregation problem in the United States. He refuses to stay silent, even though people told him to wait for the change to happen. King is a part of the Southern Christian Leadership Conference that has many organizations across the South. 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