Kraft’s new price offer more attractive to Cadbury
The deadline for Kraft, under UK takeover law, to raise its offer for Cadbury is today, and its improved price offer is expected to be accepted by the majority of shareholders by 2 February. The new offer values the company at around £12 billion (US$19.7 billion), offering 840 pence a share, including 500 pence in cash and the rest in stock.
The Kraft/Cadbury strategic fit
Kraft has come to the end of a three-year turnaround plan and its refocused growth strategy is strongly centred on selected core categories, such as chocolate, biscuits and coffee.
With the earlier acquisition of Danone’s biscuit and cereals division it has secured the leading position in the global biscuits market with an 18.4% value share, and the company seems to be following the same aggressive acquisition policy in an attempt to gain the leading position in the confectionery market.
The joint value share of Kraft and Cadbury in the global confectionery market will be 14.9%, capturing the top position from current leader Mars (14.5%).
Kraft’s further expansion in the confectionery market ties in with its ongoing restructuring strategy and aim to become a “global powerhouse in snacks, confectionery and quick meals”. Expanding its activities in confectionery will fully complement the integrated Danone biscuits and cereal product operations.
Although Kraft’s overall packaged food market share in all regions, with the exception of the two smallest, the Middle East and Africa and Australasia, is significantly higher than Cadbury’s, in confectionery Cadbury has a significant lead over Kraft, except in Eastern Europe where Kraft was one of the first multinational movers to enter the market. With this acquisition Kraft will gain a strong value share and leading position in many core emerging markets in Latin America, the Middle East and Africa and Asia-Pacific, such as India.
As well as wider geographical reach, Kraft will also benefit from Cadbury’s brands overlapping its own chocolate and sugar confectionery portfolio as well as its commanding position in gum.
Kraft’s acquisition of Cadbury will give it the leading position in global confectionery and expand its geographic coverage in emerging regions. However, even confectionery is expected to perform below overall packaged food growth over the 2009-2014 period, with a 1.5% CAGR compared to a 1.7% CAGR, respectively.
However, Kraft’s most relevant regional gains are set to be in Asia-Pacific and Latin America, whose confectionery markets over the 2009-2014 period are expected to post CAGRs of 2.3% and 2.6%, respectively.
Kraft’s latest large-scale acquisitions, Danone’s biscuits and Cadbury, are indicative of the company’s strategic direction of establishing strong growth platforms in categories in which it can benefit from complementary operations and significant economies of scale.
Further consolidation likely to continue
For the global confectionery market 2001-2008 was a period of consolidation, although not to the same extent as in baby food, driven by different market dynamics, namely the explicit objective of all the major players to establish large economies of scale in production and achieve a wider geographical reach.
The combined market share of the top 10 global confectionery players grew from 43% in 2001 to 54% in 2008. Large-scale acquisitions, such as the Mars-Wrigley deal, and multinationals’ expansion into new markets through acquiring leading national players contributed to this consolidation. In the current climate, the trend is likely to continue to be driven by companies’ defensive moves in an effort to remain competitive and not be left behind by intensifying consolidation.