Kraft Foods Inc.

On Monday, Nov. 9, Kraft Foods Inc. formally made a hostile bid for Cadbury plc. A Kraft/Cadbury merger would create a confectionery and snacks giant with over $50 billion in annual sales, uniting Kraft's Philadelphia cheese and Oreo cookies with Cadbury's Dairy Milk chocolate and Trident gum.

2009

Nov. 9: Kraft launches hostile bid for Cadbury: Kraft Foods Inc. on Monday launched a hostile bid for Cadbury plc, aggressively priced with no sweetener to a $16.3 billion proposal. The target swiftly rejected the offer as derisory. - Laura Board

Nov. 4: Kraft will maintain acquisition 'discipline': Kraft Foods Inc.'s third-quarter earnings report on Tuesday appears to have undermined its $16 billion hostile takeover proposal for Cadbury plc (NYSE:CBY), with sales declining a worse-than-expected 5.7% even as earnings per share comfortably exceeded consensus forecasts. - Laura Board

Nov. 2: Kraft third-quarter earnings preview: Analysts predict that earnings this quarter will be 48 cents per share on revenue of $10.32 billion, according to Reuters. The results will be up from 44 cents for the same quarter last year.  - Maria Woehr

Nov. 2: Cadbury awaits Kraft's next move: With less than two weeks to go before the deadline for Kraft Foods Inc. to formalize a $16 billion-plus unsolicited bid for Cadbury plc or walk away, observers predict the U.S. company may slightly sweeten -- but won't sugarcoat -- its offer. - Laura Board

Oct. 9: Cadbury's Carr regretting tough talking Kraft?: According to Reuters, Carr is facing pressure to "soften his stance" now that Kraft has until Nov. 9 to come up with a formal bid. With hostile takeovers on the verge of making a comeback and more expected this fall, this kind of begs the question: How is one supposed to act when approached with a hostile takeover? - Maria Woehr
 
Oct. 2: Cadbury downplays shareholder suit:  Cadbury plc said Friday it considered a complaint against its board filed by American shareholder Steward International Enhanced Value Index Fund as "entirely without merit." - Jonathan Braude

Oct. 1: Hershey kisses Cadbury goodbye?: Kraft Foods Inc.'s chances of consuming British confectioner Cadbury plc looked rosier Thursday as smaller rival Hershey Co. appeared unable to muster the financing for a competitive bid. - Jonathan Braude

Sept. 30: Kraft Foods given Cadbury bid deadline: The U.K. Takeover Panel on Wednesday gave Kraft Foods Inc. almost six weeks to produce a firm offer for confectionery maker Cadbury plc or retreat. - Laura Board

Sept. 30: An article published The Wall Street Journal Wednesday touts the success of Kraft's near-complete reorganization, which the company calls Organizing for Growth, and as a totem of the new structure highlights the launch of a new Vegemite brand. - Sara Behunek

Sept. 29: Report: Arbs bet Kraft will snag Cadbury: Arbitrage investors, who speculate on companies involved in ongoing deals, are betting that Kraft Foods Inc. will eventually snag U.K. confectioner Cadbury plc -- and will do so without much more of a fight, despite Cadbury CEO Todd Stitzer's recent statement that he does not believe Kraft's proposal makes strategic or financial sense for Cadbury. - Sara Behunek

Sept. 28: Kraft CEO makes headlines in the U.K.: Kraft Foods Inc. (NYSE:KFT) CEO Irene Rosenfeld worked the U.K. Sunday papers this past weekend, giving interviews to archrivals The Sunday Telegraph and The Sunday Times, as the company waits to hear whether the Takeover Panel will issue it with a deadline to retreat or make a firm offer for confectioner Cadbury plc (NYSE:CBY). - Laura Board

Sept. 28: Cadbury defends its CEO: Embarrassed British confectioner Cadbury plc was forced to defend its CEO, Todd Stitzer, on Friday, following days of adverse commentary and a reported threat of regulatory scrutiny. It issued an official statement clarifying his position on a possible £9.84 billion ($15.7 billion) takeover by U.S. suitor Kraft Foods Inc., claiming his remarks had been misconstrued and denying his opposition had softened. - Jonathan Braude

Sept. 25: Cadbury clears things up, somewhat: After all the hubbub and possible interest from the U.K.'s Takeover Panel over what Cadbury plc (NYSE:CBY) chief executive Todd Stitzer may or may not have said, the British confectioner issued a statement hoping to clear all doubts about Cadbury's feeling about a takeover by Kraft Foods Inc. (NYSE:KFT).:

For the avoidance of doubt, Mr. Stitzer does not believe that Kraft's proposal makes strategic or financial sense for Cadbury and his comments should not be interpreted in any other way. Cadbury's position in relation to Kraft's proposal remains precisely as set out in the letter to Kraft issued on 12 September. - Baz Hiralal

The Deal's Kenneth Klee looks at how a Cadbury-Kraft reorganization would look:

Sept 24: Prior to launching a $16.7 billion bid for Cadbury plc (NYSE:CBY) in early September, one of CEO Irene Rosenfeld's biggest initiatives at Kraft Foods Inc. (NYSE:KFT) has been an ambitious restructuring of the company calls Organizing for Growth, launched in 2007 and now mostly complete. Meanwhile, in 2008 Cadbury CEO Todd Stitzer began a corporate realignment Cadbury calls Vision Into Action.

Rosenfeld and other top Kraft execs discussed their reorg at some length in a recent article in Strategy + Business, and it makes interesting reading as we try to get a bead on how the two companies would integrate. OFG, as it's (inevitably) known, has a strong decentralization flavor, a result, Rosenfeld says, of the pendulum having swung too far toward central control. Read more here.

Sept. 23: Could Kraft tell Cadbury to keep its candy?: Cadbury's Todd Stitzer and chairman Richard Carr could be playing good cop/bad cop with Kraft Inc. (NYSE:KFT). Remember that letter Carr sent to Kraft CEO Irene Rosenfeld last week basically saying the valuation was too low and the company wants to be independent? Well, Stitzer now seems to be pushing for that higher bid.

He told The Wall Street Journal he recognizes the synergies between the businesses saying, "If a higher bid does not materialize, I think our shareowners will have to decide whether or not the value of our plan or the value of whatever offer's on the table is appropriate." - - Maria Woehr

Sept. 23: Stitzer wants 15 times Ebitda from Kraft?: Cadbury chief executive Todd Stitzer could be warming up to the idea of a merger with Kraft Foods Inc. After recently admitting there was some strategic sense to a deal, Stitzer may have named his price at £12.2 billion ($19.9 billion). Bank of America Merrill Lynch sales specialist Simon Archer said in a note seen by Reuters, "On price, Todd seemed to admit that a 15x Ebitda multiple would be a fair price." That's about 20% higher than Kraft's unsolicited cash-and-stock bid of $16.7 billion. - Baz Hiralal

Sept. 22: Cadbury seeks deadline for Kraft bid: Cadbury plc has turned to the Takeover Panel in an attempt to force unwanted suitor Kraft Foods Inc. to either step up with a sweetened offer or leave the confectionery group in peace to continue its restructuring program. The Uxbridge, England, company has requested the regulator issue Kraft with a "put up or shut up" deadline. It would force Kraft to proceed with a firm offer or walk away and be barred from bidding for six months under most circumstances. - Laura Board

Sept. 18: Candymaker Cadbury won't trust strangers: Picking up a defense mandate from a sophisticated, multibillion-dollar bid target like British confectionery maker Cadbury plc is a lot tougher than taking candy from children. Sweet-talking won't do the trick, and you won't get your hands on the prize if you have a mellow, soft center. Under attack, a company wants trusted advisers who can mount a quick and ruthless defense. - Jonathan Braude

Sept. 17: Will Cadbury get a Hershey/Buffett bid?: The Wall Street Journal is reporting that the Hershey Trust Co., which holds voting control of candy maker Hershey Co. (NYSE:HSY), has hired Warren Buffett's favorite banker, former Goldman, Sachs & Co. (NYSE:GS) banker Byron Trott, and boutique banking firm Watch Hill Partners LLC to advise on a possible bid for Cadbury plc (NYSE:CBY). There were earlier reports that Hershey had hired J.P. Morgan Chase & Co. (NYSE:JPM) to explore options as well. - Maria Woehr

Sept. 16: Cadbury: Future is sweet: Cadbury plc CEO Todd Stitzer on Wednesday tried to fend off unwanted suitor Kraft Foods Inc. by painting a bright picture of his company's growth prospects beyond the current restructuring. The Uxbridge, England, maker of Dairy Milk chocolate and Trident gum is midway through a three-year cost-cutting drive dubbed Vision into Action, which Stitzer trumpeted. He said he is confident that by 2011 Cadbury will have achieved its goal of "good mid-teens" profit margins. - Laura Board

Sept. 15: Cadbury baking a better offer?: Just in case the executives over at Kraft Foods Inc. (NYSE:KFT) didn't quite understand that the $16.7 billion offer to Cadbury plc (NYSE:CBY) was rejected the first time around, Cadbury chairman Richard Carr went ahead and wrote an open letter to Kraft CEO Irene Rosenfeld spelling out how unattractive the offer is for the confectioner. The letter, however, instead left many wondering if Cadbury is putting fire on the stove to get a tastier offer from Kraft, or even rivals the Hershey Co. (NYSE:HSY) or Nestle SA. - Maria Woehr

Sept. 9: Kraft pushes Cadbury union as banks seek funds: Bankers for Kraft Foods Inc. began to arrange financing for its takeover of Cadbury plc as the suitor's CEO said her company would not need to make asset sales to fund the bid. Bloomberg News reported that Citigroup Inc. and Deutsche Bank AG, which form part of a Kraft advisory team led by Lazard, are trying to secure debt financing to cover about half of the stock-and-cash offer for Cadbury. - Laura Board

Sept. 8: Kraft CEO sweet-talks Cadbury bid: Kraft Foods Inc. on Tuesday maintained confidence in its unwelcome pursuit of Cadbury plc, flicking aside like a few stray crumbs any concerns about financing or shareholder support. In a conference call, Kraft chairman and CEO Irene Rosenfeld insisted she is comfortable about financing the transaction and securing the support of her own shareholders. - Laura Board and Jonathan Braude

Sept. 8: Tasty fees for bankers in Kraft, Cadbury: According to The Telegraph, the advisers$21 billion. - Maria Woehr

Sept. 8: With Cadbury's board rejecting Kraft Foods Inc.'s £10.2 billion ($16.7 billion) stock-and-cash offer for Cadbury plc as "fundamentally inadequate," competitors are busy studying whether throwing their hats into the ring makes sense. But for their part, investors are betting on sweetened offer as Cadbury's shares shot past the 745 pence mark, to close 38% higher at 783 pence, and well above the 31% premium to Friday's closing price Kraft first offered.

The Deal's George White parses words from other potential Cadbury suitors, and speculates on possible motives to jump into the bidding war -- or avoid it altogether:

advisers working on a possible deal between Kraft Foods Inc. and Cadbury plc could get 0.7% to 1.25% of the total deal value. If Cadbury had accepted the £10.2 billion ( $16.7 billion) bid from Kraft, then commissions could have been over £250 million. But it didn't. So, if the valuation increases, fees will be higher. According to analysts Bloomberg interviewed, a deal to take over Cadbury could be as high as

• Nestlé's CEO Paul Bulcke said Monday his company had ruled out major acquisitions in 2009 and 2010, though he declined to comment on Cadbury specifically.
• Hershey is smaller than Cadbury, and with 90% of its sales in the U.S. it would not derive sufficient synergies from acquiring a global brand.
• Mars is busy digesting Wm. Wrigley Junior Co. after buying it for $23 billion in April 2008.

Sept. 7: Kraft bids $16.7B for Cadbury: U.S. food giant Kraft Foods Inc. shocked the London market out of its late-summer torpor Monday, Sept. 7, using the cover of a U.S. public holiday to announce its £10.2 billion ($16.7 billion) stock-and-cash pursuit of chocolate-to-chewing-gum maker Cadbury plc, one of Britain's best-loved brands. - Jonathan Braude and Laura Board

Continue reading below

2008

Oct. 1: Is Kraft Foods Inc. contemplating a deal for Cadbury plc? The rumor has been out there for sum time, but Citigroup Inc. downgraded the confectioner in late September on the possibility Cadbury could fall victim to bid. 

Meanwhile, even Kraft was affected by the turmoil for financial companies the week of Sept. 15. The food group will replace American International Group Inc., which the government bailed out Sept. 17 with an $85 billion loan, in the Dow Jones Industrial Average. According to a Reuters item Sept. 18 citing the Dow Jones Indexes: The move stems from "the 'effective nationalization' of AIG and its very low stock price." The change takes effect Sept. 22 when trade opens. Kraft shares were up 2.82% Thursday afternoon, Sept. 18, to $33.57.

But back to M&A. Just days after closing its $2.6 billion tax-free deal with Ralcorp Holdings Inc. for its Post cereals business, Kraft said Aug. 6 it has sold its Maarud, Estrella and Taffel snacks brands to Herkules Private Equity Fund. The brands operate in Sweden, Norway and Lithuania and have nearly 350 employees. Terms of the deal were not disclosed. As it has continued to retool, Kraft on June 17 unveiled more details on its Post cereals deal.Meanwhile, after the $23 billion Mars Inc.-Wm. Wrigley Jr. Co. deal, Kraft offered some clues during its first-quarter earnings call April 30 as to how it would compete with the soon-to-be giant.

"We would acquire to build scale in international geographies, and that is very much on the plate," chair and CEO Irene Rosenfeld said on the call, opting not to address speculation it could go after Cadbury, which spun out its North American drinks business May 7. (See Dealwatch: Confectioners for more).

Meanwhile, Warren Buffett was in Feb. 14 the latest confirmed investor to set his sights on Kraft. His Omaha-based Berkshire Hathaway Inc. bought 132.4 million shares of Northfield, Ill.-based Kraft, representing an 8.6% stake of the company. The stake was worth about $4.32 billion as of Dec. 31, according to a regulatory filing Feb. 14.

Back to Kraft's overhaul. In November 2007, Kraft and activist investor Nelson Peltz were having a busy few weeks. The company, in which Peltz's funds hold a 2.4% stake and where he lobbied for change for several months, unveiled merger plans Nov. 15 for its Post cereals business and store-brand label provider Ralcorp in a tax-free deal worth $2.6 billion. Antitrust regulators approved the Ralcorp deal Jan. 29.

That deal followed an agreement between Peltz and Kraft whereby the food company said it would expand its board from nine to 11, adding two directors picked by the company and approved by Peltz, and several days after The Wall Street Journal first reported a deal with Ralcorp was imminent. (Separately, Peltz made an offer for hamburger chain Wendy's International Inc. Nov. 12. For more, see a related Dealwatch.)

Nearly two weeks after it came to light that Peltz might have some ideas about ways Kraft could unlock shareholder value, the company unveiled plans July 3 for a $7.2 billion deal for Groupe Danone's cookie business. (The deal won approval from the European Commission Nov. 9.) The news came nearly three months after tobacco company Altria Group spun off the unit, and speculation was ripe that the Northfield, Ill.-based company, the No. 1 cookie maker in the U.S., could be hungering for a deal of its own. Analysts suggested in January a frenzy among foodies could be on the horizon. 

According to media reports in June, Peltz, who also had a hand in affecting Cadbury Schweppes plc's auction of its American Beverages unit, which turned into a spinoff, and earlier a board shakeup at H. J. Heinz & Co., took a stake in the food group and was preparing to encourage the board to unload its Post cereals and Maxwell House coffee business, as brand names have suffered in this supermarket era of organic grocers and discount retailers. There was also speculation at the time that Buffett was buying up Kraft shares. At that point, indeed, he had amassed nearly half the stake indicated in the Feb. 14 filing, The Deal's Peter Moreira noted.

Kraft partially exited the candy business -- excluding the sale of its chocolate operations -- two years ago when it sold its Life Savers and Altoids brands to Wrigley, and, according to a Chicago Tribune report April 6, was also thought to possibly have its sights on Cadbury's confectionary business.

FINDING THE SWEET SPOT

Terms of the Kraft spinoff, announced Jan. 31, 2007 called for shareholders to receive .7 of a Kraft share for every share held of Altria, formerly Philip Morris Cos. The Deal's Lisa Gewirtz-Ward noted that in a report based on interviews with food industry executives, one analyst suggested the deal could spark a dealmaking spree among food companies.

UBS analyst David Palmer said in a report that Groupe Danone, Cadbury Trebor Bassett or Ferrero SpA are possible acquisition targets for Kraft. ... He predicted that Kraft's share price will fall in 2007, causing it to invest in stronger brands and buy companies that could pump up the company's bottom line. And as Kraft starts to make acquisitions, its rivals will too. The report predicts that in three to five years a handful of global food companies -- likely to consist of Nestlé SA, Unilever, Kraft and PepsiCo. -- will exist to better work with large retailers such as Wal-Mart Stores Inc. Meanwhile, midsized companies with $10 billion to $20 billion in sales -- H. J. Heinz Co., Campbell Soup Co., General Mills Inc., Kellogg Co., Hershey Co., Wm. Wrigley Jr. Co., Danone and Cadbury -- will become acquisition targets, according to the report.

In the last few years, Kraft, the largest food maker in the U.S., struggled with slowing sales and undertook a reorganization to focus its portfolio on key brands. In July 2006, Kraft sold off its Minute Rice label to Spanish food group Ebro Puleva SA for $280 million, another move to trim holdings and concentrate on more premium products.

D-E-A-L-S

• The deal came just weeks after Kraft announced plans to take the United Biscuits plc's Iberian holdings for nearly $1 billion.
  • At the time, Kraft said it would roll the brands into its own separate company and relinquish its 25% stake in the London-based biscuit maker. The deal also doubles Kraft's presence in Spain and Portugal and "brings home" to Kraft the European, Middle Eastern and African rights of such well-known brands as Ritz, Oreo and Chips Ahoy!, all of which were sold to United Biscuits in 2000.
• In March, Kraft unloaded its Milk-Bone dog biscuits business to Del Monte, fetching $580 million -- a price tag that fell far short of the $1 billion figure one source had previously predicted and told The Deal in October 2005.
  • The move was a politically correct one of sorts for Del Monte, as it came just weeks after it had announced grabbing Meow Mix Holdings Inc. from the Cypress Group LLC for $705 million.
• In late December 2005, Kraft Canada agreed to sell some of its grocery assets to a company owned by Sun Capital Partners Inc. and EG Capital Group LLC. The deal included Kraft's Primo pasta, sauce and tomatoes, as well as Ideal vegetables and Il Migliore and Roma food service pasta. Also included are the Canadian licensing rights for several Del Monte products, including canned fruits and vegetables.
• In 2004, Kraft announced plans to sell off its yogurts unit to CoolBrands International Inc. for nearly $59 million.
• Also in late 2004, Wm. Wrigley Jr. unveiled plans to spend $1.48 billion to take Altoids, Life Savers and other Kraft confections. The unit went for 10 times Ebitda.
• Two years before, Kraft agreed to sell its Latin American Fleischmann's yeast and industrial bakery ingredients business to Australian yeast and natural foods supplier Burns Philp & Co. Ltd. in a deal worth $110 million.
• In 2000, Kraft, which already owned the Slim-Fast franchise including its meal replacement bars, bought Rye Brook, N.Y.-based Balance Bar Co. for about $268 million at the height of the energy bar craze.

The company's just one of many peers to refocus its portfolio on core brands.

WHAT'S INSIDE KRAFT'S PANTRY

A1 steak sauce	KNOX gelatin
Kool-Aid	Chips Ahoy! cookies
Oreo cookies	Stove Top stuffing
Baker's chocolate	Velveeta cheese
Crystal Light	Miracle Whip mayo
Maxwell House coffee	Country Time lemonade

Dealwatch executive summary
The Date	The Action
9.2008 8.2008 6.17.08 4.30.08 2.14.08	Is Kraft contemplating a Cadbury buy? Kraft closes its Post cereals deal, continues to regroup. Kraft details Post cereals plan. Kraft offers clues on dealmaking plans. Peltz's Kraft stake revealed.
11.15.07	Kraft unveils Post cereals sale.
11.12.07	Peltz offers to buy Wendy's.
11.09.07	Kraft and Peltz come to terms.
11.08.07	Kraft nears Post cereals sale.
7.03.07	Kraft takes Danone's cookies for $7.2 billion.
6.22.07	Peltz reportedly takes a stake in Kraft; has a turnaround plan.
4.06.07	Is Kraft hungry for Cadbury?
1.31.07	Altria plans Kraft spinoff. Kraft ends its first day of trade down 1.7%; Altria ends up 2.1%.
7.27.06	Kraft cuts rice from its diet for $280 million.
7.10.06	Kraft scoops up United Biscuits' Iberian brands for $1.07 billion.
3.16.06	Del Monte gobbles Milk-Bone for $580 million.
3.02.06	Del Monte pays $705 million cash for Meow Mix Holdings.
12.2005	Kraft Canada agrees to unhand several grocery assets up north.
10.2005	Kraft's Milk-Bone business is expected to fetch $1 billion.
12.2004	Kraft sells its yogurt unit to CoolBrands International for $59 million
11.2004	Wm. Wrigley Jr. says it will pay $1.48 billion for Kraft's confections.
10.15.02	Kraft announces it will sell its Latin American Fleischmann's yeast unit to Burns Philp for $110 million.
8.2001	Kraft tests public waters and barely budges from its opening price of $31.50 per share upon debut.
2000	Kraft boosts its energy bar holdings, paying $268 million for Balance Bar.
Source: The Deal

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