The long-awaited deal between American food giant Kraft and British confectionary maker Cadbury has gone ahead in a deal worth about $21 billion, creating a giant firm worth billions and containing dozens of brands.
The company reportedly amended its original deal in order to earn the approval of both Cadbury and billionaire Warren Buffet, who is Kraft’s biggest shareholder.
The deal marks the end of a volatile period for both companies, with Cadbury initially rejecting a Kraft offer while it reportedly considered a deal with confectionary group Hershey.
Cadbury, which is over 180 years old, previously rejected a deal from Kraft that would value the British group at just over $18 billion. The US group had until last night to complete the new offer, which is now worth about 840 pence per share.
The deal will see Kraft pay 500 pence in cash and 0.18 new Kraft Food shares for each Cadbury share. This is an increase from the original offer of 300 pence, and 0.25 per share, with the company also announcing the issue of 265 million new shares, instead of the previously planned 370 million.
Cadbury shares rose about 3.6% after the deal was announced to 838 pence, while Kraft stocks fell by 1.1% to $US29.25.
Kraft chief executive Irene Rosenfeld told Reuters she felt the deal wasn’t overvalued, and delivers a realistic payment.
“At the end of the day, we would pay what we thought this outfit was worth. I believe paying 13 times EBITDA for an asset of this quality is a very good price.”
The combined company will see sales of more than $107 billion worldwide from its 100 or so brands, which include Trident gum, Oreos, Milka and Toblerone. Chairman Roger Carr said in a statement the new deal would provide good opportunities for the company’s shareholders.
”We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage, values and people throughout the world,” he said. ”We will now work with the Kraft Foods’ management to ensure the continued success and growth of the business for the benefit of our customers, consumers and employees.”
“This is a bitter-sweet moment. As a chairman of a public company you are paid and required to focus on shareholder value and the process which we have undertaken has delivered shareholder value.”
There has been some concern the merger would see British jobs lost, but prime minister Gordon Brown has said the Government will commit itself to the defense of British labour.
Cadbury currently operates in 60 countries with 45,000 employees.
About 2,300 of those jobs are in Australia, where the firm controls 35% of the confectionary industry and three factories. However, local jobs are unlikely to be affected, according to the Food and Grocery Council.
The deal, which will see the Cadbury chocolate and Kraft Vegemite brands be controlled by the same firm, is unlikely to see much regulatory problems locally. The Australian Competition and Consumer Commission said last month the deal would not pose much of a threat to competition.
“The ACCC concluded that the proposed acquisition was unlikely to result in a substantial lessening of competition in the relevant market,” it said.
“The ACCC also considered that the merged firm would be unlikely to have any increased ability or incentive to leverage its strong brands such as ‘Vegemite’ or ‘Cadbury Dairy Milk’ to foreclose competition in related markets.”
Kraft recorded about $620 million in local revenue during 2008, with Cadbury also recording about $985 million. This figure does not account for the sale of Schweppes, formally owned by Cadbury, to Japanese beverage group Kirin.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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