Cadbury rejects Kraft-y takeover

The board of Cadbury, maker of the iconic Dairy Milk bar, today rejected a £10.2bn bid from US food giant Kraft.

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Last Updated: 06 Nov 2012

Cadbury, founded in Birmingham in 1824, is one of the UK’s best loved firms, with brands like Wispa, Double Decker Curly Wurly and Crunchie  in its line up.  A properly British international success story, it has substantial operations in South America and Asia to its credit, is also well known for its corporate ethics. It has made headlines recently for switching Dairy Milk to Fairtrade – the biggest name by far to do so to date.

Kraft’s CSR halo may not be quite so bright, but it also has a hefty UK presence, thanks largely to names like Philapdelphia and Dairylea. But on the grand scale of the global food business, it is an order of magnitude larger than Cadbury’s, which it covets for its confectionary expertise, heritage and market share.

A blend of chocolate and cheese doesn’t sound too promising from a product development point of view, so what’s the rationale here? Well, Kraft has been after a confectionary deal since 2007, when its arch-rival Mars swallowed gum maker Wrigley’s for $23bn. Bagging Cadbury would give it 15% of the global sweets market - neck and neck with Mars – and create a global megacorp with sales of $50bn. It’s probably only the difficulties of financing such a deal that have stopped it from having had a pop already.

From Cadbury’s point of view, the advantages are much less clear-cut. There are serious cultural issues between the two organisations for starters, never mind the question of whether there’s any real strategic benefit to be had from a tie-up. The competition commission is also going to want to have a very close look at any deal of this scale.

And then there are the less financially tangible but in the long term-equally vital questions of independence and identity.  It’s hard to see how it could be anything other than bad news for such an important and culturally distinctive member of the UK corporate scene to be reduced to the status of a modest cog in the giant wheel of a foreign-owned multinational.

There are those who respond by saying that if a deal is good for shareholder value, then it should go ahead regardless. But one man’s shareholder value is another’s greed. It was the alleged pursuit of shareholder value by activist investor Nelson Peltz that led to the break up of Cadbury Schweppes in May last year, a piece of corporate vandalism which placed the two demerged businesses squarely within range of the M&A market. Takeover battles like this were bound to follow.

The City likes the sound of it, though, if the near 40% rise in Cadbury’s shares is anything to go by. The Square Mile traders are licking their lips at the prospect of all the counter bids and new offers that are likely to emerge now that Kraft has got things rolling. And if any alternative deal is sweet enough, the Cadbury’s board won’t have much choice but to accept it.

 

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