Tuesday, January 19, 2010

Kraft takes over Cadbury

In spite of opposition from Warren buffet and Britain's largest workers union , Cadbury’s is mow officially apart of Kraft foods .

I do not intend to analyze whether this makes financial sense or not. On the other hand I want to demonstrate how this whole incident is a clear case of end-gaming.

In September of last year while snubbing Kraft’s bid used the clause "fundamentally" undervalued the firm so that Kraft does not get taken over by the rhetoric about to follow. Kraft got the right message and knew it was a question of money, Cadbury management wanted a higher price and it was just a lengthy bargain session all along.It is quite possible that Cadbury was readying itself as a good target since spinning off Dr. Pepper. It was halfway through a four- year plan aimed at increasing the company’s operating margin and thus the earnings multiple it would fetch.

However, as the bargain started, Cadbury; is midst of closing down factories, started a marketing blitz with ads at expensive TV slots and “new” product launches. If Kraft would not give a higher multiple, they would increase the denominator.This helped them to state last week:

"Our 2009 performance is ahead of our previously upgraded expectations and we have excellent momentum going into 2010."

Oh yeah, like we do not know how you did it and how sustainable that momentum really is

In addition, Unite , UK lawmakers were used as pawns by Cadbury to show of their bargaining muscle. Kraft on its part, stated slowly accumulating outstanding shares ..Roger Carr, (Chairman of Cadbury) makes the following plea :

“Don’t let Kraft steal your company with its derisory offer."

How touching, If I were an Idiot and a shareholder of Cadbury, I would cry.

Yesterday, Kraft provided Cadbury management what they wanted; MONEY and when Kraft provided it the Cadbury board unanimously jumped up asking where shall we sign?

Looks like time for a lot of overtime for Cadbury's PR in near future.

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