Cadbury Acquisition a good deal for Kraft

I am still following the Kraft Inc [KFT.NYSE] acquisition of Cadbury PLC [CBRY.LSE] . A conditional deal for sale of Cadbury to Kraft has been approved by Cadbury management but it still needs the approval of both Kraft and Cadbury shareholders.

Nearly 10% shareholder of Kraft, Warren Buffett, publicly came out against a deal on Jan 5 and today on CNBC indicated that he would have voted against the acquisition.

The latest comment, if it isn't just being made to blow off some steam, appears to suggest that Kraft is paying too much for the maker of Dairy Milk, Jaffas, Chrunchie , Moro and other well known brands but this is where Buffett and myself part company.



Cadbury is a global brand and has dominance in the majority of the markets that it operates in, New Zealand is no exception.

Because of its strong brand position globally, its potential to grow in all its markets - especially in Asia - and the largely untapped market for Cadbury in the United States -where Cadbury is a minor player - the price to be paid for full control of the company must show a healthy premium to its recent trading activity. Cadbury has a strong economic moat - good brands, with high cashflow with a reasonable barrier to entry by competitors.

Warren Buffett seems to be ignoring this fact and it seems contrary to previous indications by him that in order to gain control of a company during an acquisition a premium is more often than not paid.

The price being paid by Kraft for Cadbury isn't the deal of the century but it is approaching fair price - on Kraft's part - considering what Kraft are getting for their shareholders moola.

Locally, New Zealand media have been speculating that Cadbury's Dunedin factory maybe the subject of staff cuts and that local brands maybe for the cut. While this is of course possible because of Kraft's high debt levels due to the acquisition and pre-deal debt levels, it would be folly on Kraft's part to repeat the recent mistakes of Cadbury in New Zealand and in other global markets.

I am having sugar overload over this deal. The Kraft acquisition of Kraft is not yet a fait a compli however, so there is still room for a diabetic attack. There is still time for other Cadbury tyre kickers like Hershey to make a higher bid for some of the sweet brown stuff.


Cadbury @ Share Investor

Bitter - Sweet Chocolate Business
Cadbury could learn a thing or two from 1980's Coca Cola Experiment

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c Share Investor 2010

Bitter - Sweet Chocolate Business

The scramble for a king-size block of Cadbury PLC [CBRY.LSE] by Kraft Foods Inc [KFT.NYSE] fascinates me. I love business and investing but I have to confess also to be somewhat of a chocoholic - doctor it has been 3 minutes since my last bite. In a protracted bid that has been going since a formal offer by Kraft was made in November 2009 after it telegraphed interest in the Dairy Milk maker in September the takeover process has been full of harsh words, threats, finger pointing and egos from all sides of the chocolate vat.

Since then Kraft has been rebuffed twice by Cadbury and those harsh words have been flowing like Cadbury Creme eggs between the CEO'S of Kraft and its sweet milky target Cadbury. Meanwhile Kraft's biggest shareholder, Warren Buffett, has issued a press release urging Kraft not to pay too much for the company.



In this sickly mix of nuts and fruits comes interest from just about every major chocolate company in the world. Ferrero Rocher, Nestle', and Hershey have all been on the radar but all seem to have been dismissed as having short pockets or not serious, save for Hershey which seems to be mulling over a formal bid of its own according to some sources.

The problem for Kraft is that Cadbury contend that its shares are worth more than what they are offering and Kraft's bid significantly undervalues the long-term prospects of the company and they will have to increase their bid before the January 19 deadline if they want to take a chip off the Cadbury block.

I have to agree with Cadbury. The company has a strong presense in most parts of the world and its brand and products - no matter what some might think of its sweet milky almost chocolate free taste - dominate the minds of consumers and their sweet ways when they make a decision to buy a quick convenient snack.

This brand awareness has made Cadbury one of the worlds most successful chocolate makers in the past and that is unlikely to change any time soon.

For these reasons alone Kraft need to raise their offer and any other company considering a move on Cadbury must also take into account the company and its fine pedigree.

Warren Buffett, as a 10% holder of Kraft stock, was against Kraft's bid principally because of its intention to issue new shares in Kraft to help pay for the purchase. I have just been reading Warren Buffett on Business: Principles from the Sage of Omaha, a collection of Warren Buffett's letters to Berkshire Hathaway shareholders and he makes it very clear in a number of his letters that he is against the dilutionary effects of such transactions for the predator company if it doesn't present value for the predator. Of course the price paid for the company is a key factor as well and if the price is right for the takeover then the preferred option of purchase for Buffett is cash and preferably non -borrowed cash at that.

Cadbury would be a great company to own. Good cash flows, strong brands with a competitive moat and profit to boot.

Any suitor will have to pay a premium to take control of the purple one and Buffett has stressed he doesn't want Kraft to be that suitor but if he wants a piece of it - and I think he does - then Kraft and any other buyers are going to have to sweeten the deal beyond the current valuations put on Cadbury's assets.

I cant wait for the next move!

Cadbury @ Share Investor

Cadbury could learn a thing or two from 1980's Coca Cola Experiment


Related Amazon Reading


Cadbury's Purple Reign: The Story Behind Chocolate's Best-Loved Brand by John Bradley
Buy new: $37.96 / Used from: $29.61
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c Share Investor 2010

Cadbury could learn a thing or two from 1980's Coca Cola experiment

When you mess around with an iconic product that your customers just love to obsession just because you think you can save money by changing its appearance, packaging and well and truly tried and tested formula you risk losing that iconic status and your reputation that took generations to build and your customers.

Cadbury PLC [CBRY.LSE] have done just that by changing packaging sizes of their family block chocolates while keeping them the same size of the old by using different packaging and the most brain dead thing of all changing the taste of their very successful essential ingredient that has made them the brand to go to when you think of chocolate, the ingredient in all their products, chocolate itself!

Forget for a moment that I am a pure obsessional when it comes to chocolate, my body is part blood, water, Crunchie Bar, Dairy Milk, Moro Bar and a list as long as your arm in Cadbury products but just consider what Cadbury have done.

The product that has made them the leader in chocolate for generations has had its successful formula changed,they have substituted the very essence of chocolate, palm oil for animal fat, supposedly to save money.

That is like taking the sugar out of Coca Cola and still calling it Coke!

Business 101, you don't change a successful product that your customers would die for just to save money. Trust me, they will pay more for it.

Executives at Cadbury head office are perhaps too young to remember another iconic product that was tampered with in the mid 1980s, the aforementioned Coca Cola from the Coca Cola Company [KO.NYSE].

The formula for that iconic drink was sweetened to taste more like Pepsi and launched on customers as "New Coke" and was an instant failure. Customers protested, Coke didn't listen,



they said the new product was better and consumers just needed to get used to it but Coke management didn't figure on how obsessive their customers were (duh!) and they simply stopped buying the new Coke. Two months latter Coca Cola relented and re-launched old Coke as "Coca Cola Classic" and the two products existed side by side on the supermarket shelf for a number of years. It is no longer sold in the United States.

This should be a lesson for Cadbury who must have execs in the marketing department of their Schweppes division that know about this famous marketing blunder, they sell their own iconic lemonade and other drinks products - the Coke story from the 1980s is taught in business schools around the globe about what not to do when in business.

"Those that don't learn from the lessons of the past are doomed to make the same mistakes".

Cadbury should learn from their mistake, it is already costing them in lost sales and is going to cost them dearly in the long-term if they don't rectify their decision to make a change.

I am a life long consumer of their former delicious products and I will no longer be buying them.

They just don't taste the same.

Its Whittakers for me!

See the new Whittaker's TV Advertising comparing Cadbury to Whittakers.





Disc I love chocolate

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c Share Investor 2009

Cadbury's chip off the old family block & lose customers

It has been 5 minutes since my last confession, I am chocoholic. I don't however need help with that.

The following is only serious if you love chocolate.

What I do need help with is Cadbury's decision to change package size design and formula for their range of family sized block chocolate range.

Previously 250g, these family blocks now range from 190 grams for the "chrunchie bar" block to 235 grams, all at the same price.

The dairy milk block is 200g and Carramellow 220g for example. 

Looking at a old 250g Carramellow next to a new one today I noticed that the were the same size. 

Why is that you ask?

Well the new blocks are packaged in thick cardboard instead of paper and aluminum - how sneaky of Cadbury.

I noticed shoppers looking at the new blocks with confusion and then going down to the Whittakers display to buy different flavours, all in the same size pack don't you know!

Also their chocolate is now made with vegetable fat rather than animal fat - that ain't chocolate anymore folks its a cocoa drink with water.

After calling 0800 Cadbury to complain, the chick there told me their family block had been different sizes for 20 years ( PR bollocks!) and that I was mistaken -hey I told you I was a chocoholic, I know my chocolate baby.

Whittaker's is who I will be buying my chocolate from now on -less confusing and they are made in New Zealand instead of Cadbury's blocks that are made in OZ.

A glass and a half of milk per block?

Not anymore.

c Political Animal 2009