Wednesday, September 9, 2009

The merger of the Titans

It seems that companies are moving fast in trying to secure business deals before the economy recovers so as to try to capitalise on the recession. After the acquisition of Marvel by Disney, Kraft Foods (the owner of brands such as Oreos) tried its luck with Cadbury.

Although a heavy premium was being proposed to be paid (31% over the share price of the day), the initial offer has been rejected. Kraft offer was of £10.2 billion
Kraft said said that the acquisition of Cadbury made good business sense as adding Cadbury would create a company with global revenues in excess of $50bn and create savings across the enlarged entity of $625m annually.

According to the chairman and chief executive of Kraft Foods, the proposed combination is about growth. Basically Karft would continue to build upon Cadbury's iconic brands and strong British heritage through increased investment and innovation. Kraft believes that the next stage for Cadbury will be a very challenging one however given the strength of Kraft,this will be facilitated as it has the experience in expanding and capitalising on brand growth. In rejecting the offer, Cadbury said the offer undervalued the company, and expressed confidence in its standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope.

The market is eagerly awaiting the next steps that Kraft will take...will it increase its offer further or will it try a hostile take over by trying to lure in large shareholders on Cadbury?

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