Kraft Takeover of Cadbury

Together more delicious than ever?

Cypress Semiconductors Group: Matt Altman, Sarah Caldwell, Jacques Fruge, Elizabeth Heck, Asif Jaria, Hammad Ahmed Siddiqui, Alex Papavasiliou & Yogesh Patil

Agenda
Kraft Background Matt Altman Cadbury Background Asif Jaria

The Situation Hammad Siddiqui

Change Management Jacques Fruge Krafts Approach Sarah Caldwell Why Transformations Fail Yogesh Patil & Alex Papavasiliou Conclusion Elizabeth Heck

Kraft Foods, Inc.

Kraft Background
1903 James L. Kraft begins selling cheese door-todoor in Chicago 1912 Set up main headquarters in New York City 1924 Became known as Kraft Cheese Company 1928 Acquired Phenix Cheese Company and changed name to Kraft-Phenix Cheese Company 1930-1969 Was known as National Dairy

Kraft Background (cont.)

1976 Becomes Kraft, Inc.

1988 Philip Morris purchases Kraft for $12.9 billion

1989 Company merges with General Mills 1990s Begins merging with other companies to increase market share

2007 Kraft is once again made into an independent company by Philip Morris

Krafts Products
Beverages: Crystal Light, Country Time, Kool Aid, Tang, Capri Sun, General Foods International Coffees Snacks: Cheese Nips, Corn Nuts, Ritz, Triscuit, Wheat Thins, Newtons, Nilla, Nutter Butter, Oreo, Teddy Grahams, Chips Ahoy!

Cereals: Alpha-Bits, Golden Crisp, Honeycomb, Honey Bunches of Oats, Pebbles, Raisin Bran, Waffle Crisp, Banana Nut Crunch

Krafts Products (Cont.)

Dinners and Meats: Oscar Mayer cold cuts and hot dogs, Louis Rich cold cuts and hot dogs, Kraft Easy Mac, Lunchables, Stove Top Stuffing Salad Dressings and Condiments: Kraft salad dressing, Kraft mayo, Miracle Whip, A.1. Steak Sauce, Philadelphia cream cheese Deserts and Confectionery: Jell-O, Cool Whip, Altoids, Life Savers

http://www.youtube.com/watch?v=ECZTIHEDMu4

Krafts Goal
Krafts goal is to have top-tier financial performance To achieve this goal, Kraft plans to use four strategies:

Build a high-performing organization

Reframe categories

Exploit sales capabilities

Drive down costs without compromising quality

Cadbury, plc

Cadbury Background
Cadbury was a British-based confectionary company headquartered in Uxbridge, England It was the second largest company in its field, only Mars-Wrigley

after

Cadbury was listed on the London Stock Exchange and made the FTSE 100 list of the LSE

Cadbury Background (Cont.)

1824 John Cadbury began selling tea, coffee and drinking chocolate he produced himself; he later partnered with his brother Benjamin to launch a company called Cadbury Brothers of Birmingham 1854 Cadbury brothers were the official suppliers of chocolate and cocoa to Queen Victoria 1878 Company expanded when Johns sons, Richard and George, acquired the Bournbrook estate

1879 Set up Bournville factory

1893 George bought 120 acres of land and built a model village for his workers, which by 1900 had expanded to 330 acres and 313 cottages

Cadbury Background (Cont.)

1918 Cadbury expanded abroad by opening a factory in Tasmania

1919 Merged with chocolate company J.S. Frys & Sons

1969 Merged with the soft drink producer Schweppes and was renamed Cadbury Schweppes; went on to acquire soft drink companies Canada Dry, Sunkist and Typhoo Tea 2008 Cadbury Schweppes split into two separate entities, with one focusing on confectionery and the other focusing on beverages

Cadbury Products
Chocolate: Dairy Milk, cream egg, crispy crunch, curly wurly, chocolate clairs, dream, flake, mini eggs and more

Sweets: Jelly babies, sherbet lemons, assorted toffees, fruit gums, fuzzy peach, Swedish berries and more
Mints and Chewing Gum: Trebor mints, spearmints, mini-mints, Trident, Clorets, Dentyne and more
http://www.youtube.com/watch?v=TVblWq3tDwY&feature=related

The Situation

Stakeholders of the Takeover

Cadbury Takeover by Kraft

September 7, 2009 Kraft surprises the London market with a cash and shares approach for Cadbury, valuing it at 10.2 billion (US $16.2 billion) The offer was rejected November 9, 2009 Put up or shut up deadline to Kraft Hostile Kraft launched formal bid valuing the firm at 9.8 billion Cadbury swiftly rejects the derisory bid

Cadbury Takeover by Kraft

Kraft bolsters its war chest by selling its frozen pizza arm to Nestl Kraft earned $3.7 billion to spend toward Cadbury takeover

Eliminated Nestl from Cadburys race

Barriers to Takeover
Cadburys Management You risk destroying what makes Cadbury great. - Todd Stitzer, Chief Executive Cultural aspects are always difficult to put a value on... But we believe [Cadburys corporate ethos] would be lost within a larger organization... There is the magic of Cadbury, which is important, particularly around our brands. - Andrew Bonfiled, Finance Director

Cadbury takeover by Kraft

January 18, 2010
Cadburys board recommends 12 billion sale to Kraft

January 19, 2010

Cadbury and Kraft Foods reach a deal where Kraft would purchase Cadbury for 8.40 per share, valuing Cadbury at 11.5 billion ($18.9 billion) creating the worlds largest confectioner

Cadbury Takeover by Kraft

February 3, 2010
Chairman Roger Carr, Chief Executive Todd Stitzer and Chief Financial Officer Andrew Bonfield announce their resignations Kraft borrowed 7 billion ($11.5 billion) in order to finance the takeover

February 5, 2010
Kraft reached 75% control of the groups shares, delisting Cadbury
http://www.youtube.com/watch?v=w9eP5-qkAVc

Change Management
Four Step Change Process

Mainstream Vs Multistream
Step One - Recognize the Need or Opportunity for Change

Mainstream: Managers identify need for change; focus on changes that will maximize profits, efficiency, productivity and competitiveness

Multistream: Managers and other stakeholders identify need for change; look for opportunities that balance multiple forms of well-being for multiple stakeholders

Mainstream Vs Multistream
Step Two - Unfreeze: Prepare members for change

Mainstream: Managers use influence to establish a sense of urgency and reduce resistance among members Multistream: Managers consult with other stakeholders to develop a shared vision

Mainstream Vs Multistream
Step Three - Change
Mainstream: Managers act as change agents and gain members commitment to the vision by promoting positive attitudes and confidence in abilities

Multistream: Management maintains open dialogue to participation among members

Mainstream Vs Multistream
Step Four - Refreeze / Reslush

Mainstream: Managers make adjustments to systems and structures to reinforce the changes

Multistream: Change is viewed as an ongoing process; managers emphasize alignment and flexibility

Krafts Approach

Krafts Approach:
Need or Opportunity for Change
Needs: Kraft experiencing slow growth and declining sales Opportunities: Cadburys strong brand loyalty Cadburys presence in emerging markets Possible revenue and cost synergies

Krafts Approach
Method of Unfreezing
Committed to: Keeping certain plants open Allow R&D to remain in the UK Manage Cadbury from the UK

Maintain production of Dairy Milk and other products in the UK

Lack of communication with major Union Structured merger to avoid the need of shareholder approval

Krafts Approach
Mainstream or Multistream?

Why Transformations Fail

Why Transformations Fail

Not establishing a great enough sense of urgency
Not providing a powerful enough guiding coalition Lacking a vision

Under-communicating the vision by a factor of ten

Not removing obstacles to the new vision Not systematically planning for and creating short-term wins Declaring victory too soon Not anchoring changes in the corporations culture

http://news.bbc.co.uk/2/hi/business/8570470.stm

Conclusion

Conclusion
What steps might Kraft take to recover? Has Kraft taken a Mainstream or Multistream approach to the Cadbury takeover?

Conclusion (cont.)
What can Kraft do to maintain Cadburys ethos and address the communitys and workers concerns? Where does Kraft fall in the organizational change steps and where do they go from here: Change Refreeze

References

Works Cited
"Cadbury: Cadbury Our Story." Cadbury: Cadbury Chocolate. Web. 31 Mar. 2010. <http://www.cadbury.co.uk/cadburyandchocolate/ourstory/Pages/ourstoryFlash.aspx#/1861_1900/philanthropy/1879_factory_in_gar den>. "Cadbury Shareholders Approve Kraft Takeover| Reuters." Business & Financial News, Breaking US & International News | Reuters.com. Web. 31 Mar. 2010. <http://www.reuters.com/article/idUSTRE61124D20100202>.

"Cadbury Takeover Earns Kraft's Irene Rosenfeld a 40% Rise | Business | The Guardian." Latest News, Comment and Reviews from the Guardian | Guardian.co.uk. Web. 31 Mar. 2010. <http://www.guardian.co.uk/business/2010/mar/30/kraft-irene-rosenfeldpayrise-cadbury>.

"FT.com / In Depth - Cadbury Executives Join Kraft Top Team." Financial Times. Web. 31 Mar. 2010. <http://www.ft.com/cms/s/0/88378a6a-3387-11df-9223-00144feabdc0,dwp_uuid=da5b2be8-9c6b-11de-ab58-00144feabdc0.html>.

International Finance: Kraft Faces U.K. Probe Over Plant Closing --- Company Reversed Course in Statements on Cadbury's Somerdale Factory; 'False Hope' for Residents Cecile Rohwedder, Alistair MacDonald. Wall Street Journal. (Eastern Edition). New York, N.Y.:Mar 8, 2010. p. C.5

"Kraft Clinches Control of Cadbury - MarketWatch." MarketWatch - Stock Market Quotes, Business News, Financial News. Web. 31 Mar. 2010. <http://www.marketwatch.com/story/kraft-clinches-control-of-cadbury-2010-02-02>.

Works Cited (Cont.)

"Kraft Moves Fast to Silence the Doubters - Telegraph." Telegraph.co.uk: News, Business, Sport, the Daily Telegraph Newspaper, Sunday Telegraph Telegraph. Web. 31 Mar. 2010. <http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/7061041/Kraft-moves-fast-to-silence-thedoubters.html>. "Kraft Sells Pizza Business to See off Nestl Interest in Cadbury - Birmingham Post - Business Blog." Birmingham Blogs - Birmingham Post. Web. 31 Mar. 2010. <http://blogs.birminghampost.net/business/2010/01/pizzas-to-go-kraft-ditches-hig.html>.

Kraft 'Sorry' for Breaking Cadbury Pledge Michael Carolan. Wall Street Journal (Online). New York, N.Y.:Mar 16, 2010

"Warren Buffett: Kraft's." Telegraph.co.uk: News, Business, Sport, the Daily Telegraph Newspaper, Sunday Telegraph - Telegraph. Web. 31 Mar. 2010. <http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/7036463/Warren-Buffett-Krafts-11.9bn-takeover-of-Cadbury-is-a-bad-deal.html>.

Kennedy, By Simon. "Kraft to Buy Cadbury in $19.5 Bln Friendly Deal - MarketWatch." MarketWatch - Stock Market Quotes, Business News, Financial News. Web. 18 Apr. 2010. <http://www.marketwatch.com/story/cadbury-kraft-finalizing-terms-of-friendly-deal-2010-01-19>.

Kansas, Dave. "Is It Safe to Invest in Europe? - WSJ.com." Business News & Financial News - The Wall Street Journal - WSJ.com. Web. 18 Apr. 2010. <http://online.wsj.com/article/SB10001424052748703523204575129630987837978.html?mod=rss_most_emailed_day_europe>.

"Kraft Misses Earnings Estimates, Looks to Cadbury and Overseas Markets For Growth - DailyFinance." DailyFinance - DailyFinance. Web. 18 Apr. 2010. <http://www.dailyfinance.com/story/company-news/kraft-misses-estimates-looks-to-cadbury-for-growth/19360449/>.