Kraft and Cadbury Merger Analysis
On February 2, 2010 Kraft and Cadbury, two leading firms in the snack industry finalized their merger decision after five months of negotiation. In this report we will examine why it made strategic sense for the two companies to combine and evaluate the performance of the combined companies since its merger. In particular we will analyze the post-merger financial statements and highlight a few points regarding the accounting.
INTRODUCTION OF KRAFT AND CADBURY
Kraft Foods Inc. (KFT) is the world’s largest food processing company with revenues of $40 billion (fiscal year 2009) which sells its products in more than 150 countries. We are familiar with many of its global brands – Oreo, Philadelphia Cream Cheese, Trident, Nabisco, Maxwell House and others. Its products are biscuits, confectionary, cheese, convenient meals and packaged groceries. About half of the revenues are from international markets. Kraft Foods is an attractive investment in which Warren Buffett has a 9.4% stake. It is a truly global brand with 100,000 employees and a large market capitalization of $53 billion (Yahoo finance, Feb 13, 2011). In 2008, it replaced AIG as part of the Dow Jones Industrial Average.
Cadbury plc is a British confectionary company which is now a wholly owned subsidiary of Kraft. It moved up its rank as second to largest player in the industry after the merger. Cadbury is substantially smaller than Kraft; about a fifth the size of Kraft. Yet, while still a public company and listed in the FTSE 100, Cadbury already operated in 60 countries and hired 45,000 employees. Its revenues in 2008 were £5.4 billion with 46% from chocolate, 33% from gum, and 21% from candy products. Cadbury was an attractive takeover target due to its high growth potential and market experience in emerging countries.
REASONS FOR THE MERGER
Strategically and financially, a merger between the two multi-national companies with similar target markets and products seemed like a perfect
INTRODUCTION OF KRAFT AND CADBURY
Kraft Foods Inc. (KFT) is the world’s largest food processing company with revenues of $40 billion (fiscal year 2009) which sells its products in more than 150 countries. We are familiar with many of its global brands – Oreo, Philadelphia Cream Cheese, Trident, Nabisco, Maxwell House and others. Its products are biscuits, confectionary, cheese, convenient meals and packaged groceries. About half of the revenues are from international markets. Kraft Foods is an attractive investment in which Warren Buffett has a 9.4% stake. It is a truly global brand with 100,000 employees and a large market capitalization of $53 billion (Yahoo finance, Feb 13, 2011). In 2008, it replaced AIG as part of the Dow Jones Industrial Average.
Cadbury plc is a British confectionary company which is now a wholly owned subsidiary of Kraft. It moved up its rank as second to largest player in the industry after the merger. Cadbury is substantially smaller than Kraft; about a fifth the size of Kraft. Yet, while still a public company and listed in the FTSE 100, Cadbury already operated in 60 countries and hired 45,000 employees. Its revenues in 2008 were £5.4 billion with 46% from chocolate, 33% from gum, and 21% from candy products. Cadbury was an attractive takeover target due to its high growth potential and market experience in emerging countries.
REASONS FOR THE MERGER
Strategically and financially, a merger between the two multi-national companies with similar target markets and products seemed like a perfect