Milka to attract Dairy Milk...will it end up as the battle between Kraft and Cadbury?

Kraft...after it managed to acquire Cadbury it decided to go head to head with it's flagship brand...Dairy Milk. In this regard, Kraft is gearing up for a UK roll-out of its flagship Milka chocolate brand in the UK

Kraft will launch Milka with a TV campaign, created by Ogilvy, on April 19th. Shooting for the spots are expected to start next week. The activity will include multi variate advertising including adverts in the press to promote the six different Milka variants and highlight the fact that they are made with Alpine milk.

Currently Dairy Milk is market leader in the UK, with sales of £371m last year, (nearly twice as much as its nearest competitor Mars' Galaxy which made £192m last year).

Will this start causing distress already between these two confectionery brands?

Kraft made it...Finally it managed to get Cadburys commitment to sell

As they say the deal is no...and with this, Kraft have managed to get Cadbury's Board of Directors agreement to sell the company. This doesn't come for free to Kraft that has agreed to pay 840p per share which brings the total deal price of £11.6bn in a deal that involves both a cash and share element.

This is the second offer that Kraft made is much higher than the 745p which Kraft had made last September and that Cadbury had totally refused. The market was also expecting a move from either Ferrero or Hersheys as Cadbury preferred to be takenover in a friendly way (rather then in a hostile deal as Kraft tried to do in its initial approach) however both companies took to long to come up with an offer.

This deal did not go down really well with the famous US investor Warren Buffett who said that he had a lot of doubts on the deal. Kraft investors will not have the chance to vote on the deal, which involves the Kraft issuing 265m new shares, equivalent to about 18 per cent of its existing share capital, because that is below the 20 per cent level at which shareholder approval is required.

Mr Buffett, who holds more than 9 per cent of Kraft, said the company was worth more than its current stock price, which fell by 2 per cent at $28.72 in early Wall Street trading on Wednesday and hence the use of stock payment by Kraft make Cadbury's purchase a “very expensive deal”.

What do you think about the deal? Was it an ideal one or could Cadbury have made a better deal by waiting a bit more?

Everybody wants Cadbury

Cadbury has become very attractive, not only for it chocolate but for all it's business. After the hostile takeover attempts by Kraft Foods' all other major confectionery brands are starting to see whether they can produce a counter offer to takeover the British Brand.

One of these companies is Hershey which is controlled by a charitable trust. The Trust has encouraged the management to consider making a counter offer for Cadbury of around $17bn in such a way to topple the $16.2bn offer made by Kraft Foods.

However the bid is not imminent as there are a lot of things that Hershey has to analyse...one of these is to weigh the effect that such a huge transaction (that would include a combination of stock, debt and a multi billion-dollar contribution from deep-pocketed investors such as pension funds) would effect the overall viability of the company. Cadbury is larger than Hershey so the latter must be very careful not to end up like Porsche, who tried to take over Volkswagen but ended up being takeover by the same brand.

It is also thought that Hershey is seeking the cooperation of the Italy brand Ferrero so as to form a consortium that would bid for the British Brand. However, although Ferrero has expressed it's interest for Cadbury to the UK authorities, it is sill unclear whether Ferrero is ready to take this large step.

Hershey has an advantage over Kraft Foods as it has been working closely with Cadbury for a number of years by distributing the British Brand in the US. Hershey may be a welcome alternative in what has become an increasingly contentious standoff between Cadbury’s top executives and Kraft.

How would this end up? Will Kraft manage to takeover the British Brand or will Cadbury manage to hold back and defend itself from any takeover bid?

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?