Kraft Sweet on Cadbury

Kraft Foods Inc. (KFT - Analyst Report), a leading manufacturer and marketer of packaged food products and grocery products worldwide, on Monday, September 7, 2009 has offered a takeover bid for Cadbury (CBY - Snapshot Report) at a purchase price of $16.2 billion (£10.2 billion).

The offer price represents a 31% premium over the closing price on Friday, September 4, 2009. Thereafter, shares of Cadbury jumped 41%.

However, Cadbury has rejected the offer, claiming that the total offer price of $16.2 billion (£10.2 billion) amounted to a significant undervaluation, as it expects to receive a bid for as much as $21 billion. The other major contenders for Cadbury are The Hershey Company (HMC - Analyst Report), Kellogg’s (K - Analyst Report) and PepsiCo (PEP - Analyst Report).

Kraft continues to pursue the takeover, as management at Kraft believes the deal (if successful) would create a company with annual revenues of approximately $50 billion. Also it would become one of the biggest global powerhouses in snacks, confectionery and quick meals, with an outstanding portfolio of leading brands around the world.     

Cadbury is also a strategic fit for Kraft as most of its products are complimentary to Kraft’s line of operations such as biscuits, chocolate, powdered drinks and dairy foods. Additionally, Cadbury has a strong presence in the developing and emerging markets of China, Brazil, Russia, Mexico and especially India, where the Cadbury brand is synonymous with chocolate.

Moreover, Cadbury holds the second position with a 10.3% share (2008 data) of the world confectionery market, the first being Mars Inc. with a 14.8% share. Hershey holds 7.6% share and Kraft holds a 4.5% market share. Furthermore, Cadbury also has a 28.4% share of the world gum market, while Kraft holds a negligible 0.1% share.  

Should the deal materialize, Kraft’s management expects it to enhance its growth and margins. Further, the deal is also expected to be accretive to earnings from the second year following the completion.