Final Chal Raha

Merger & Acquisition
“Merger & Acquisition

With Respect to Kraft & Cadbury deal”
PREPARED BY
MOHAMMAD HAMDAN
BATCH - 2009-2011
UNDER THE GUIDANCE OF

DR. P.S.RAI CHAUDHRY
AS A PARTIAL FULFILLMENT OF MBA PROGRAMME OF

JAMIA HAMDARD, NEW DELHI
Certificate of Completion
This is to certify that dissertation report on “MERGER & ACQUISITION WITH RESPECT
TO KRAFT & CADBURY DEAL” prepared by "Mohammad Hamdan" of MBA 2009-11
batches is his genuine effort under my guidance and supervision.
Dr. P.S.Ray Chaudhry

Faculty Guide
DECLARATION
I hereby declare that this Project on “MERGER & ACQUISITION WITH RESPECT TO
KRAFT & CADBURY DEAL” has been written and prepared by me during the academic
year 2009-2011.This project was done under the able guidance and supervision of Dr.P.S.Ray
Chaudhry, Faculty in partial fulfillment of the requirement for the Master of Business
Administration Degree course of Jamia Hamdard.
I also declare that this project is the result of my own effort and has not been submitted to any
other institution for the award of any Degree or diploma.
MOHAMMAD HAMDAN
Enrl no: 2009-502-068

Acknowledgement
I would like to express deep sense of hearty and special gratitude to my faculty Guide Dr.
P.S. Ray Chaudhry for his valuable suggestions and constant help and encouragement
throughout the advancement of this project report
I am deeply indebted to Dr. P.S. Ray Chaudhry without whose help, stimulating
suggestions and encouragement this project would not have seen the light at the end of the
tunnel.
Last but definitely not the least; I convey special thanks to all my colleagues for their morale
boosting and valuable ideas.
MOHAMMAD HAMDAN
MBA GEN 2009-11
2009-502-068
Table of Content
1. Executive summary
2. Introduction to the Topic
3. Company Profile
4. Chapter 1 – Literature Review
 Defining Merger & Acquisition
 Distinction between Merger & Acquisition
 Classification of Merger & Acquisition
 Purpose of Merger & Acquisition
 Issues in Merger & Acquisition
5. Chapter 2 – Research Methodology
6. Chapter 3 – Data Analysis
 Valuation
 SWOT Analysis
 Porters 5 forces model
 Brand Valuation
7. Chapter 4 - Conclusion & Recommendations
8. Annexure
9. Bibliography
INTRODUCTION
Background
Mergers and acquisitions (M&A) and corporate restructuring are a big part of the corporate
finance world. Every day, investment bankers arrange M&A transactions, which bring
separate companies together to form larger ones. When they're not creating big companies
from smaller ones, corporate finance deals do the reverse and break up companies through
spin-offs, carve-outs or tracking stocks. Not surprisingly, these actions often make the news.
Deals can be worth hundreds of millions, or even billions, of dollars or rupees. They can
dictate the fortunes of the companies involved for years to come. For a CEO, leading an
M&A can represent the highlight of a whole career. And it is no wonder we hear about so
many of these transactions; they happen all the time. Next time you flip open the newspaper’s
business section, odds are good that at least one headline will announce some kind of M&A
transaction. Sure, M&A deals grab headlines, but what does this all mean to investors? To
answer this question, this report discusses the forces that drive companies to buy or merge
with others, or to split-off or sell parts of their own businesses. Once you know the different
ways in which these deals are executed, you'll have a better idea of whether you should cheer
or weep when a company you own buys another company - or is bought by one. You will
also be aware of the tax consequences for companies and for investors
COMPANY PROFILE
CADBURY
Cadbury India is a fully owned subsidy of Kraft Foods Inc. The combination of Kraft Foods
and Cadbury creates a global powerhouse in snacks, confectionery and quick meals.
Cadbury was originally begun in 1824 by Wealthy Quaker John Cadbury in Birmingham and
it was initially opened a shop selling coffee, tea and chocolate and cocoa drinks. Cadbury’s
introduced in 1860’s Cocoa Essence, which was made with pure cocoa butter, was the
beginning of today’s chocolate. Cadbury manufactured its first milk chocolate in 1897 and
later they moved all their manufacturing to Bourneville. The Bourneville factory employed
2,600 people and Cadbury was incorporated as a limited company. Cadbury introduced their
famous brand Dairy Milk in 1905.
Later the company made its first major merger in 1921 with its rival JS Fry & Sons and it led
to another landmark with production of its first filled egg product in 1923. As Quakers, the
Cadbury family always cared about the well-being of its staff, setting new standards for
working and living conditions in Victorian Britain. By the mid-1930s, more than 100 acres
around the Bourneville factory were devoted to recreation.
In 1969, Cadbury merged with Schweppes, which was a well-known British brand that
manufactured carbonated mineral water and soft drinks and formed Cadbury Schweppes.
Later it became a powerful force in the global food industry by acquiring Sunkist, Canada
Dry, Typhoo Tea and some others companies.
Cadbury Schweppes revealed in 2007 that it was planning to split its business into two
separate entities: one focusing on its main chocolate and confectionery market; the other on
its US drinks business. The demerger took effect in 2008, with the drinks business becoming
Dr. Pepper Snapple Group Inc. Cadbury’s main presence is in the sectors of chocolate, gum
and candy and it earns its most of its revenue from chocolate.
In India, Cadbury began its operations in 1948 by importing chocolates. After 60 years of
existence, it today has five company-owned manufacturing facilities at Thane, Induri (Pune)
and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (New
Delhi, Mumbai, Kolkata and Chennai). The corporate office is in Mumbai. Currently,
Cadbury India operates in four categories viz. Chocolate Confectionery, Milk Food Drinks,
Candy and Gum category. In the Chocolate Confectionery business, Cadbury has maintained
its undisputed leadership over the years. Some of the key brands in India are Cadbury Dairy
Milk, 5 Star, Perk, Éclairs and Celebrations.
Since Cadbury started in India more than 60 years ago, Cadbury is the largest confectioner in
the country, commanding 70% of India's chocolate market and 30% in sugar boiled
confectionery category. Cadbury’s famous brands in India are Dairy Milk, 5 Star, Perk,
Eclairs and malted milk additive Bournvita. With annual revenues of approximately $50
billion, the combined company is the world's second largest food company, making delicious
products for billions of consumers in more than 160 countries. The company employs
approximately 140,000 people and has operations in more than 70 countries.
KRAFT FOOD Inc.

Kraft Foods, Inc. was formed in 1989 and it has its origins from three American companies:
1) Kraft, 2) General Foods, and 3) Oscar Mayer. Each of these companies had significant
contributions to the food processing sector in the America.
Kraft was originally founded in 1903 by J.L. Kraft in Chicago and their initial business was
purchasing and reselling cheese. The company began manufacturing processed cheese in
1914, and the products were soon used by the U.S. armed services during 1st World War.
Kraft merged with the Phenix Cheese Corporation in 1928 to become Kraft-Phenix Cheese
Corporation.
Later in 1930, Kraft-Phoenix Cheese Corporation was bought by National Dairy Products
Corporation, but the company continued as an independent subsidiary of National Dairy
Products Corporation. The parent company changed its name to Kraft Corporation in 1969,
then to Kraft, Inc. in 1976.
General Foods Corporation was originally formed by C.W. Post in 1985 under the name of
Postum Cereal Company. The Postum Cereal Company acquired the Jell-O Company in 1925
and the allied companies went through various name changes and finally renamed as General
Foods Corporation. The General Foods Corporation was in the business of quick freezing
food, instant coffee and Tang breakfast beverage crystals.
The company Oscar Mayer had its roots in the meat business since 1873 and was specialists
in processed meat such as sausages, and hams. The company had a very good reputation for
quality products and good customer satisfaction and remained as a pioneer in the processed
meat industry till it was bought by General Foods Corporation in 1981.
Later, General Foods Corporation and Kraft Inc ware acquired by the tobacco giant Philip
Morris Companies Inc and it has finally lead to Kraft General Foods, Inc in 1989. Now, the
Kraft Foods Inc is owned by Altria Group and it has emerged as the largest confectionery,
food, and Beverage Corporation headquartered in the United States and the second-largest in
the world after Nestlé. In 2008 Kraft foods Inc has generated $ 42 billion in revenue, with
90,000 employees spread over 70 countries in the world
CHAPTER 1
LITERATURE REVIEW
Defining M&A
The Main Idea one plus one makes three: this equation is the special alchemy of a merger or
an acquisition. The key principle behind buying a company is to create shareholder value
over and above that of the sum of the two companies. Two companies together are more
valuable than two separate companies - at least, that's the reasoning behind M&A. This
rationale is particularly alluring to companies when times are tough. Strong companies will
act to buy other companies to create a more competitive, cost-efficient company. The
companies will come together hoping to gain a greater market share or to achieve greater
efficiency. Because of these potential benefits, target companies will often agree to be
purchased when they know they cannot survive alone.
Acquisitions
An acquisition may be only slightly different from a merger. In fact, it may be different in
name only. Like mergers, acquisitions are actions through which companies seek economies
of scale, efficiencies and enhanced market visibility. Unlike all mergers, all acquisitions
involve one firm purchasing another - there is no exchange of stock or consolidation as a new
company. Acquisitions are often congenial, and all parties feel satisfied with the deal. Other
times, acquisitions are more hostile. In an acquisition, as in some of the merger deals we
discuss above, a company can buy another company with cash, stock or a combination of the
two. Another possibility, which is common in smaller deals, is for one company to acquire all
the assets of another company. Company X buys all of Company Y's assets for cash, which
means that Company Y will have only cash (and debt, if they had debt before). Of course,
Company Y becomes merely a shell and will eventually liquidate or enter another area of
business. Another type of acquisition is a reverse merger, a deal that enables a private
company to get publicly-listed in a relatively short time period. A reverse merger occurs
when a private company that has strong prospects and is eager to raise financing buys a
publicly-listed shell company, usually one with no business and limited assets. The private
company reverse merges into the public company, and together they become an entirely new
public corporation with tradable shares. Regardless of their category or structure, all mergers
and acquisitions have one common goal: they are all meant to create synergy that makes the
value of the combined companies greater than the sum of the two parts. The success of a
merger or acquisition depends on whether this synergy is achieved.
Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as though they were
synonymous, the terms merger and acquisition mean slightly different things. When one
company takes over another and clearly established itself as the new owner, the purchase is
called an acquisition. From a legal point of view, the target company ceases to exist, the
buyer "swallows" the business and the buyer's stock continues to be traded. In the pure sense
of the term, a merger happens when two firms, often of about the same size, agree to go
forward as a single new company rather than remain separately owned and operated. This
kind of action is more precisely referred to as a "merger of equals." Both companies' stocks
are surrendered and new company stock is issued in its place. For example, both Daimler-
Benz and Chrysler or Arcellor and Mittal ceased to exist when the two firms merged, and a
new company, DaimlerChrysler and Arcellor-Mittal, was created. In practice, however,
actual mergers of equals don't happen very often. Usually, one company will buy another
and, as part of the deal's terms, simply allow the acquired firm to proclaim that the action is a
merger of equals, even if it's technically an acquisition. Being bought out often carries
negative connotations, therefore, by describing the deal as a merger, deal makers and top
managers try to make the takeover more palatable.
A purchase deal will also be called a merger when both CEOs agree that joining together is in
the best interest of both of their companies. But when the deal is unfriendly - that is, when the
target company does not want to be purchased - it is always regarded as an acquisition.
Whether a purchase is considered a merger or an acquisition really depends on whether the
purchase is friendly or hostile and how it is announced. In other words, the real difference lies
in how the purchase is communicated to and received by the target company's board of
directors, employees and shareholders.
CLASSIFICATIONS OF MERGERS & ACQUISITION
 Horizontal Merger
They result in forming large firm which can give the benefit of economics of scale
and increased competitive power. Such merger may attract regulatory control because
of their potential negative effect on competition. In such timing plays crucial role. Ex:
Merger of RPL with RIL in the year 2009.
 Vertical Merger
In this kind of merger reliability of input availability is ensured and better

management of production and inventory is achieved. Common ownership of
different activities of the value chain helps in reconciliation of conflicting interest and
motives. Opportunity is there to gain competitive power through controlling input
prices for own consumption and higher prices. Such merger have potential to increase
entry barrier and hence may perceived as anti competitive. Ex : Maersk Logistics &
Damco merge on June 2009 .
 Conglomerate Merger
Basically there can be 3 types of conglomerate mergers:-
 Entry to related business through product extension,
 Entry into new geographic market,
 Entry into unrelated business activities.

Such mergers require special competence and skill to manage different function such
as R&D, Operation, Marketing, etc. pertaining to each diversified business. Synergy
helps gain competitiveness and cost advantage provided there are certain levels of
relatedness, and assets and capabilities acquired are complementary to the existing
ones, even though product market scope of each business is different. Ex: Merger of
Info vision and Serco Group on Nov 2008.
PURPOSE OF MERGER & ACQUISITION
 Expend Market
o Reduce Competition
o Access New Product Diversification
o Strengthen Distribution Channel
o Get right of patent.
 Strengthen production Facilities

o Economies of Scale
o Standardization of input and output
o Incorporate best manufacturing operates
 Enhance financial Strength

o Improve liquidity
o Opportunity to dispose surplus land or asset
o Increase Borrowing limit
o Take advantage Of Tax Benefit
o Improve EPS
 Improve General Image

o Improve Image
o Attract managerial talent
ISSUES IN MERGER & ACQUISITION
 Financial analysis of the target
The managers of acquiring should careful in assessing the target financial figures
particularly with regards to the accounting policies underline each figure, the
assumption made on revenue and capital expenditure, quality of asset indicated in the
balance sheet vis-à-vis those physically available as well as disclosed/undisclosed
legal encumbrances, provision made and finally level of performance against
domestic and global benchmark.
 Valuation of the target
Investors in a company that is aiming to take over another one must determine
whether the purchase will be beneficial to them. In order to do so, they must ask
themselves how much the company being acquired is really worth.
Naturally, both sides of an M&A deal will have different ideas about the worth of a
target company: its seller will tend to value the company at as high of a price as
possible, while the buyer will try to get the lowest price that he can. There are,
however, many legitimate ways to value companies. The most common method is to
look at comparable companies in an industry, but deal makers employ a variety of
other methods and tools when assessing a target company. Here are just a few of
them:
 Comparative Ratios - The following are two examples of the many
comparative metrics on which acquiring companies may base their offers:
o Price-Earnings Ratio (P/E Ratio) - With the use of this ratio, an acquiring
company makes an offer that is a multiple of the earnings of the target
company. Looking at the P/E for all the stocks within the same industry
group will give the acquiring company good guidance for what the target's
P/E multiple should be.
o Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring

company makes an offer as a multiple of the revenues, again, while being
aware of the price-to-sales ratio of other companies in the industry.
 Replacement Cost
In a few cases, acquisitions are based on the cost of replacing the target
company. For simplicity's sake, suppose the value of a company is simply the
sum of all its equipent and staffing costs. The acquiring company can literally
order the target to sell at that price, or it will create a competitor for the same
cost. Naturally, it takes a long time to assemble good management, acquire
property and get the right equipment. This method of establishing a price
certainly wouldn't make much sense in a service industry where the key assets
- people and ideas - are hard to value and develop.
 Discounted Cash Flow (DCF)
A key valuation tool in M&A, discounted cash flow analysis determines a

company's current value according to its estimated future cash flows.
Forecasted free cash flows (operating profit + depreciation + amortization of
goodwill – capital expenditures – cash taxes - change in working capital) are
discounted to a present value using the company's weighted average costs of
capital (WACC). Admittedly, DCF is tricky to get right, but few tools can
rival this valuation method.
 Basis of Exchange
There are 3 principal approaches to acquiring shares of another company:-
 Cash for stock, in which the acquiring company acquires the shares of the
acquired company through payment of cash.
 Debenture for stock, in which the acquiring company acquires the shares of
the acquired company through issuing debenture.
 Stock for stock, in which the acquiring company issue its own shares to buy
the shares of the acquired company.
.
CHAPTER 2
RESEARCH
METHODOLOGY
CHAPTER 3
DATA ANALYSIS
Valuation of Merger and acquisition
A merger is a combination of two corporations in which only one corporation survives and
the merged corporation goes out of subsistence. Alternatively, in merger two corporations
Combine and share their resources in order to accomplish mutual objectives and both
companies bring their own shareholders, employees, customers and the community at large.
Acquisition takes place when one firm is purchasing the assets or shares of another company.
Mergers are often categorized as horizontal, vertical, or conglomerate. A horizontal merger is

one that takes place between two firms in the same line of business whereas vertical merger
involves companies at different stages of production. The buyer expands backwards in the
direction of the source of the raw material or forward in the direction of the customer. The
last one, i.e., conglomerate merger involves companies in unrelated line of business. This
distinction is very much necessary to make and understand the reasons for the mergers.
The scale and the pace at which merger activities are coming up are remarkable. The recent
booms in merger and acquisitions suggest that the organizations are spending a significant
amount of time and money either searching for firms to acquire or worrying about whether
some other firm will acquire them. Also, mergers are regarded as one of the activities the
purpose of business expansion or a measure of external growth in contrast to internal
growths. The recent phenomenon booms in mergers and acquisitions would increase at a
much faster rate in near future because the world markets are becoming more integrated
because of open trade policies and hence more and more companies are adopting and forming
strategic alliances in order to compete in the competitive world and to maintain their market
shares.
Merger and acquisition decision is an investment decision. This is the most important
decision, which influences both the acquiring firm and the target firm, which is to be
acquired. An organization cannot make that crucial decision without incisive analysis by
financial planners and corporate managers. The acquiring firm must correctly value the firm
to be acquired and the acquired firm must get the returns for the goodwill they have created
over the years in the market. Growth through acquisition is occurring in an unprecedented
number of companies today as strategic acquisitions replace the once prevalent hostile
takeovers by corporate raiders. In the current business environment, it is vital to understand

how to blend strategic and financial concepts to evaluate potential acquisitions.
Motives
The findings from the theoretical material and the empirical investigation will be analyzed
both horizontally and vertically according to the following: -
There are two types of motives involved in merger and acquisition and these are Explicit
and Implicit motives.
 Explicit Motives
 Synergy: Synergy means that the merged firm will have a greater value than the
sum of its parts as a result of enhanced revenues and the cost base.
 Economies of Scale: Economic of scale refer to the reduction in unit cost

achieved by producing a large volume of a product.
Horizontal mergers aim at achieving economies of scale. This phenomenon
continues while the firm grows to its optimal size, after which a firm experiences
diseconomies of scale.
 Economies of Vertical Integration: Economies of vertical integration are

achieved in vertical mergers. It makes coordination of closely related operating
activities easier.
 Entry to New Markets and Industries: A firm that wants to enter a new market
but lacks the know-how can do so through the purchase of an existing player in
that product or geographical market. This makes the two firms worth more
together than separately.
 Advantages: Past losses of an acquired subsidiary can be used to minimize

present profits of the parent company and thus lower tax bills. Thus, firms have a
reason to buy firms that have accumulated tax losses.
 Diversification: One of the reasons for conglomerate mergers is diversification of

risk. There are two types of risks associated with businesses- systematic and
unsystematic risk. Systematic variability cannot be removed by diversification and
hence mergers are not able to eliminate this risk. Though, unsystematic risk can be
spread through mergers.
 Managerial Motives: The management team of the acquiring firm tends to

benefit from the merger activity. The four most important managerial motives for
merger are empire building, status, power and remuneration.
 Implicit Motives
 Hubris: It is like a maturity test for the owners and the company boards of
directors when they see the opportunity to form a new business cycle.
 Excess of Money: When a company has excess of money, the question of what to
do with it eventually comes up and this leads towards merger and acquisition.
Tax Considerations
An acquisition can be taxable or tax-free. In a taxable acquisition, shareholders of the selling

firm are treated for tax purposes as having sold their shares and are liable to pay tax on any
capital gains or losses. In a tax-free acquisition, the selling shareholders are viewed as
exchanged their old shares for similar ones, and they do not experience any capital gains or
losses. The taxes paid by the merged firm also depend on the tax-status of the acquisition.
There is no revaluation of assets in a tax-free acquisition, whereas, in a taxable acquisition,
the assets are devalued and any increase or decrease is treated as a taxable gain or loss
Valuation through
DCF
Pro
jected
2004 2005 200 20 200 2009 2010 2011 2012 2013
6 07 8
Free Cash flow 475 665 472 527 124 133.3 143.4 154.2 165.8 178.
5 1 3 7 38
Present Value Of 0 0 0 0 0 121.2 118.5 115.8 113.2 110.
Cash flow 3 2 8 9 76
Total Present Value 579.67
6
Terminal Value 9632.3
6
Pv Of Terminal 5980.9
value 4
Enterprise Value 6560.

62
Amt in pound
million
Cadbury & Kraft Deal

After almost 1 year of twists and turns, Kraft has won the race to acquire Cadbury giant
group. The bidding war between Kraft and British company Cadbury was riveting and ended
in a rapid-fire auction. Initial reactions to the deal were highly diverse and retail investors
were completely puzzled by the market reaction.
Going by the stock market reaction, the acquisition was a big blunder. Usually it has been
seen in the past that the stock price of the acquired company are increased and of the
acquiring company are decreased, but in this case it was vice a versa. It might be due to
undervaluation of the acquired company. Prior of the deal the stock price of Cadbury was
showing hardly any changes but within 3 month of deal the stock price of Cadbury has shown
the growth of around 3 %. Whereas the stock price of kraft ltd has shown the growth of 1.5 %
on the deal date.
Cadbury stock price Kraft stock price reaction to the

Investors were worried about the financial risks of such a costly deal. Media
deal had been positive to the deal. Almost all the reports were adulatory while editorials
praised the coming of age of Indian industry. A prominent financial daily presented the deal
almost as revenge of the natives against the old colonial masters with a picture of London
covered in our national colours.
Expected growth & Synergy
Cadbury has more instant consumption channels like gas stations, corner shops which are
well penetrated by Cadbury products in many countries whereas Kraft is more concentrated
on supermarket and groceries where margins are lower, so when they are together, overall
distribution will be higher for both and the margins will increase.
Cadbury has big business in some emerging markets like India, South Africa, Mexico and
Turkey where Kraft is relatively weak or not existing; similarly Kraft also has strong
emerging markets likes Brazil and China which will help the Cadbury products.
There are complementary products, when two companies bring together their portfolio, in
many markets they enjoy benefits of a larger and well balanced products. The tie up will
generate the number one global confectionery player with 14.8% share slightly above of mars
who has 14.6%.
The combined company target is long term organic revenue growth in excess of 5% and
sustainable long term eps growth of 9 to 11%, whereas Kraft targets long term organic
growth of 4% and EPS growth 7 to 9%.
Cadbruy is highly complementry to Kraft’s geographical tootprint and will increase

developing markets contribution to Kraft’s net revenue from about 20% to about 25%.
Kraft management has been banging the familiar synergy drum hard regarding the
significance of the acquisition, and calm itself a disciplined buyer. While increasing exposure
to developing markets does sound appealing and increasing top line growth by 1 % on a large
revenue base is worthy of applause. Based on the proposed price of 745 pence per ordinary
share or $50 per ADR, cadbury needs to deliver top line growth of 10 % and EBITDA
margins of 27 % each year from 2010 to 2014 to justify the purchase price. Historicaly,
Cadbury,s originc top line growth has beent in the range of 4 to 6% and its EBITDA margins
have declined from 22 % in 2004 to 15 % in 2008.
Turning to kraft foods, on a standalone basis, if Kraft is able to deliver annualized top line
growth of 4 %, grow EPS at the high end of its targeted 7-9% range, and achieve higher asset
efficiencey via productivity gains as mangement has been promoising. Its shares could be
worth as much as &32. In addition, kraft will likely use $8 billion new debt to finance about
half of the purchase, increasing its leverage to a higher level amidcontinous economic
uncertainities.
SWOT Analysis
SWOT analysis is a strategic planning tool to evaluate a company’s Strengths, Weaknesses,

Opportunities, and Threats involved in a project or in a business venture. It provides a good
overview whether the company’s overall situation is fundamentally healthy or unhealthy.
Doing the SWOT analysis on Kraft-Cadbury group, will provide us information about its
strengths (what it can do, what are its core competencies) and weaknesses (what it cannot do,
what are the missing capabilities) in addition to opportunities (potential favorable conditions,
external market opportunities) and threats (potential unfavorable conditions, external threat to
profitability).
SWOT Analysis OF Cadbury & Kraft
Strengths Weaknesses
Cadbury’s strong brand name Different corporate cultures
Established distribution network of Cadbury Previous failure of Kraft in India
Kraft’s broad product range
Opportunities Threats
Huge market potential Competition
Innovation Of products Different local tastes, substitute products
 Strengths
 Cadbury’s strong brand name: Cadbury is a major player in Indian confectionary

segment. It gives a strong and complementary strategic fit in Indian market for the
combined group. Cadbury’s main source of revenue is from chocolate market

which is 70%. It captured the market with affordable prices.
1
 Distribution networks: Cadbury is having a very strong distribution network. It is
having tie-up with 1.2 million shops throughout India. This is an added advantage
to Kraft, as it need not start from the scratch to form distribution networks.
 Kraft‘s broad product range: Kraft is having brands ranging from cheese, biscuits
to chocolates and its products are famous worldwide. So the combined group can
offer different and new variety of products to the Indian consumers.
 Weaknesses
 Different corporate cultures: Since the acquisition has happened recently, Kraft
and Cadbury have a lot to work on integrating their cultures and work practices to
create a strong synergy between both companies. Differences in management
styles and operating procedures can be hard to resolve. So it will take some to
work on the differences, which may not be very productive in their strategic
planning.
 Previous failure of Kraft in India: In 2003, Kraft made a futile attempt to enter
into Indian market with the introduction of powered orange drink. Kraft cheese
and Toblerone chocolates are imported products and seen as high end products in
India. So the Kraft might be considered as expensive brand by many people in
India.
 Opportunities
 Huge market potential: India is a fast developing country maintaining an average

growth rate 8-10% even in the economic slowdown. Both biscuit and snack
sectors are experiencing a huge growth around 15-20% every year. Kraft-Cadbury
can target to capture future market by penetrating in to urban areas, where the
buying power of people is steadily increasing. So all together there is huge market
potential.
 Innovation of products: A large segment of snacks industry is still occupied by the

traditional Indian sweets and snacks. So if Kraft-Cadbury come-up with some
good innovative products tailored to the Indian tastes, then there is huge
opportunity to tap that sector.
 Threats
 Competition: There is already huge competition from the existing players who
have strong position in the Indian market such as Britannia, Nestle, Parle, Pepsi
co, and Amul. Some of those competitors have very diverse objectives and
powerful strategies to expand their market share, so competition from existing
vendors is threat.
 Different local tastes: India is a big country with 28 different states and cultures.
Every state/ culture has their own tastes that differ much from the others. Each
state is having its own traditional food preferences and life styles. So looking at
India as one entity and introducing products that are suitable and acceptable to
majority of states is a challenging task.
Five Forces Model
Porter’s Five-Forces Model is a key analytical tool to find out how strong are the competitive
forces and to understand where power lies in a business situation. Porter’s five –forces model
is a framework for modeling the industry as being influenced by five forces: Supplier Power,
Buyer Power, Competitive Rivalry, Threat of Substitution and Threat of New Entry. We felt
that application of Porter’s five –forces methodology will provide us a good analysis for our
first question. So we have applied five forces model in the context of Indian market
conditions, especially focusing those sectors of biscuits and snacks. Applying Porter’s five –
forces model to the marketing conditions, on one hand it will provide us a clear idea about
how much is threat due to the entry of new players, how strong is the bargaining power of the
suppliers, how well is the buying power of buyers and how much influence they can cast on
the market conditions. On other hand it will gives us an idea about how strong is the
competitive rivalry from the competitors providing products of similar category and how well
is the threat due to the substitution products that are offered as alternatives to the Kraft-
Cadbury’s intended products. Having a clear-cut understanding of where power lies, will
influence in crafting strategy to take advantage of favorable forces and to improve situation
where the forces are unfavorable.
Five Forces Model

 Suppliers of inputs
The basic ingredients and commodities used in biscuits and snack sectors are
primarily wheat, sugar, salt etc. India is being a primarily agricultural country, there
are many suppliers providing these commodities to the companies producing biscuits
and snacks, so they act as players with having very little or no power over the control
of the prices. So we have evaluated the supplier force as moderate to normal.
 Potential New Entrants
The Indian market is attractive to many international companies because it is a

country with 2nd largest population in the world with a large growth in the markets.
So we have evaluated the force associated with the threat of entry from new rivals is
strong due to the following reasons.
 There are low entry barriers due to lack of regulatory policies, standards and
trade restrictions in the industry.
 The fact that buyer demand is growing rapidly.
 The markets in the developed countries are already saturated in biscuit and
snack sectors, so most of the companies are targeting enter into emerging
markets like India. Hence there will be many entry candidates.
 Buyers
 Buyers cost to switch brands is low as the prices of products of biscuit/snacks

are at the basic level.
 The population of buyers is huge.

 Buyer demand is growing relatively quickly because of rise in the income
levels.
 In rural areas the buyers don’t have many other options due accessibility.
Due to the above reasons, we can conclude that buyers force is strong.
 Rivalry among competing sellers
Due to the following reasons, we conclude that competitive force among the rivals is
strong.
 Already there are many competitors who are very active in these sectors.
 The number of rivals varies due to sellers from unorganized sectors
 Buyers cost to switch brands is very low
 Some of the rivals have diverse objectives and powerful strategies.
 Substitutes
In India there are local traditional snack and sweet products offering tough
competition as substitute products. Especially in rural areas these traditional products
have strong influence and are offered at very affordable prices. So we consider them
as Strong force.
Impact of Deal On Brand Valuation
Question 1: Age Group

Merger and Acquisition
Question 2: Category Of The sample Size
Question 3: Is there any change in the policies after the deal?

Question 4: If yes, then in which field?
Question 5; whether supply policies are better know

Question 6; Is this deal has help the Kraft to increase the sale of its product
Question 7; If yes, then which factors it has led

Question 8; what you think who is going to get more benefits from the deal
Question 9 In which field ( for Cadbury)

For Kraft
Question 10; Which have more competitive promotional policies with respect to its
competitors
CHAPTER 4
CONCLUSION &
RECOMMENDATIONS
Conclusions and Recommendations
Due to annual growth of 15-20% in biscuit and snack industries in India, Kraft-Cadbury
group has a huge opportunity for entering/expanding into these sectors. Also, strong presence
of Cadbury brand name and distribution network in the Indian market is an added advantage.
But the analysis of market situation using strategic group mapping and five forces model
reveals that there is a tough competition from the existing companies in these sectors. Of
course there are lot of issues on which Kraft-Cadbury group has to work on, such as merging
of their corporate cultures, designing innovative products to suit to the Indian customers etc.
In spite of those issues, rapidly expanding biscuit and snack markets in India is very much
lucrative to Kraft-Cadbury group.
Based on our analysis, we would like to put forth the following recommendations.
 Take advantage of Cadbury brand name and distribution network
The purple wrapping of Cadbury chocolate bars is very familiar Indian consumers, so
using Cadbury brand name along with Kraft’s brand name will give a native feeling to
the consumers. Also Cadbury’s strong distribution network is an added asserts, Kraft-
Cadbury should make use of it to promote new products to reach the rural as well as
the urban markets in India.
 Be Innovative and selective in products
Kraft has a lot of its own global brands, which it would like to push them to the Indian
market. But Kraft-Cadbury group has to know what the local markets are ready for
and they have to choose carefully which products they want to sell in Indian markets,
otherwise it might not be successful. Also, to get a good foothold in the Indian
market, innovation is a critical aspect as still there is strong competition from
traditional sweets and snacks. So Kraft-Cadbury should be innovative and creative in
designing new products for Indian markets.
 Think Globally, Act Locally
Each state in India is having its own culture, life styles and their own food tastes. So
designing products that suits to many different tastes is quite challenging. In this case
Kraft-Cadbury group can take the approach followed by PepsiCo in launching a very
successful snack brand KurKure, which was launched in different flavors to suit to
different tastes and also managed to take it smoothly into the people by launching the
products during the festivals and other cultural events. In this aspect, even Cadbury
has been slower in tailoring their products to Indian tastes. So Kraft-Cadbury group
should really work on how best they can tailor their products to Indian tastes and how
effectively they can take them to consumers using advertisements and other
propaganda in localized trends. Furthermore, introducing new products into the
market, while understanding the customer needs, can create brand loyalty.
 Concentrate different segments with varied price range
To give a stiff competition to the existing players, Kraft- Cadbury should come up
with affordable prices for their products. The buyers segment in India is quite
stratified according to their purchase power. So targeting different segments with
products of different price ranges will be useful. In this way they can spread to the
rural markets by having products with low price range, at the same time products
having medium to high price can be targeting towards urban population. Also Kraft-
Cadbury group can maximize profits by using a price discrimination strategy for same
products that is setting up lower prices in rural areas and slightly higher prices at the
urban areas and thereby to target to a wider consumer base.
Annexure
A. Questioner
CADBURY & KRAFT DEAL
1. Name...............................
2. Age Group
20-35............... 35-45......................... Above 45....................
3. Category
Retailer..................... Wholesaler.....................
Distributor.....................
4. Is there any change in the policies after the deal?
Yes................ No................
5. If Yes, then in which field
Distribution policies................. Financial Policies...............

Promotion Policies............
6. Whether supply policy is better know
Yes............... No............
7. Is this deal has help the Kraft to increase the sale of its product
Yes..................... No.............
8. If yes, Then which factors it has led
Brand image............... Profit Margin............... Customer

Demand.................
9. What you think who is going to get more benefits from this deal?
Cadbury............. Kraft...............
10.In which field
Market area........... Brand Image.............. Financial...............

Expertise..........
11.Which have more competitive policies related to promotion, with respect

to its competitor?
Cadbury..................... Cadbury & Kraft...............
12.Any
suggestion ....................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
......................................................................................................................
.......................................................
Thanking You
Your signature
B. Annual Reports
Cash Flow
2008 2007 2006 2005 2004
Net Cash from operating
Activities 469 812 620 891 745
Additional Funding of past
service pension 30 48 67 31 0
Demerger financial cost 53 0 0 0 0
Income Tax paid on Disposal 44 12 83 0 0
Net Capital expenditure -482 -352 -300 -261 -259
Net dividend received or paid 10 7 2 4 -11
Free Cash Flow 124 527 472 665 475
Balance Sheet
2008 2007 2006 2005 2004

Asset Employed
Intangible Asset 3973 6332 5903 5648 5757
Property Plant Equipment 1761 1904 1664 1446 1464
Retirement benefit asset 17 223 0 0 0
Other non current asset 239 208 248 567 419
Asset held for sale 270 71 22 945 5
Inventory and trade and other
receivables 1834 2018 1914 1893 1859
other Current asset 303 87 87 114 30
Cash & Short term investment 498 495 395 379 346
Total Asset 8895 11338 10233 10992 9880
Toatal current liabilities -2048 -1920 -1862 -1841 -1696
Liabilities Directly associated With
asset -97 -18 -9 -291 0
Total non current liabilities -188 -1198 -1085 -1124 -1106
Provision -368 -172 -73 -53 -77
Retirement benefit obligation -275 -143 -204 -369 -485
5919 7887 7000 7314 6516
Financed By
Gross Borrowing 2385 3714 3304 4279 4216
Minority Asset 12 11 8 27 229
Called Up Share capital 136 264 262 260 259
Share premium 38 1225 1171 1135 1098
Retained Earning 3348 2673 2255 1613 714
5919 7887 7000 7314 6516
Net Debt
Gross Borrowing 2385 3714 3304 4279 4215
Less Cash -498 -495 -395 -379 -346
1887 3219 2909 3900 3869
Note: Amount in Pound million

Linked: invetis.com/cadbury-ir/report/ar-
2008.pdf
REFRENCES & BIBLOGRAPHY
1. Kraft Foods, Inc. http://www.novelguide.com/a/discover/cps_01/cps_01_00159.html
2. Stocks for Kraft Foods (KFT) : http://www.wikinvest.com/stock/Kraft_Foods_(KFT)
3. Stock for Cadbury http://www.wikinvest.com/stock/Cadbury_plc_(CBY)
4. History of Cadbury http://www.englishteastore.com/cadbury-history.html
5. Cadbury plc http://en.wikipedia.org/wiki/Cadbury_plc
6. Mergers and acquisitions http://en.wikipedia.org/wiki/Mergers_and_acquisitions
7. Mergers and Acquisitions: Definition

http://www.investopedia.com/university/mergers/mergers1.asp
8. A.A. Thompson & A.J. Strickland (2004): “Crafting and Executing Strategy: The
Quest for Competitive Advantage: Concepts and CASES”, McGraw Hill, 16th
edition.
9. India Knowledge Wharton: Sweet Surrender: Can Kraft's Cadbury Acquisition Help It
Tap the Indian Market? http://knowledge.wharton.upenn.edu/india/article.cfm?
articleid=4451
10. http://www.itcportal.com/newsroom/press_27jun06.htm
11. http://www.foodindustryindia.com:9080/newfood/detailnews.jsp?n=PriyaGold
%20aims%20at%2025%%20market%20share%20in%20Indian%20biscuit
%20market&id=411
12. http://www.financialexpress.com/news/quiet-launch-of-kurkure-variants-intensifies-

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Merger & Acquisition

“Merger & Acquisition

UNDER THE GUIDANCE OF

AS A PARTIAL FULFILLMENT OF MBA PROGRAMME OF

Dr. P.S.Ray Chaudhry

Enrl no: 2009-502-068

2. Introduction to the Topic

4. Chapter 1 – Literature Review

 Defining Merger & Acquisition

 Distinction between Merger & Acquisition

 Classification of Merger & Acquisition

 Purpose of Merger & Acquisition

 Issues in Merger & Acquisition

5. Chapter 2 – Research Methodology

6. Chapter 3 – Data Analysis

 Porters 5 forces model

7. Chapter 4 - Conclusion & Recommendations

KRAFT FOOD Inc.

Distinction between Mergers and Acquisitions

CLASSIFICATIONS OF MERGERS & ACQUISITION

In this kind of merger reliability of input availability is ensured and better

Basically there can be 3 types of conglomerate mergers:-

 Entry to related business through product extension,

 Entry into new geographic market,

 Entry into unrelated business activities.

PURPOSE OF MERGER & ACQUISITION

o Access New Product Diversification

o Strengthen Distribution Channel

o Get right of patent.

 Strengthen production Facilities

o Standardization of input and output

o Incorporate best manufacturing operates

 Enhance financial Strength

o Opportunity to dispose surplus land or asset

o Increase Borrowing limit

o Take advantage Of Tax Benefit

 Improve General Image

o Attract managerial talent

ISSUES IN MERGER & ACQUISITION

 Financial analysis of the target

 Valuation of the target

o Enterprise-Value-to-Sales Ratio (EV/Sales) - With this ratio, the acquiring

 Discounted Cash Flow (DCF)

A key valuation tool in M&A, discounted cash flow analysis determines a

There are 3 principal approaches to acquiring shares of another company:-

Valuation of Merger and acquisition

Mergers are often categorized as horizontal, vertical, or conglomerate. A horizontal merger is

takeovers by corporate raiders. In the current business environment, it is vital to understand

 Economies of Scale: Economic of scale refer to the reduction in unit cost

 Economies of Vertical Integration: Economies of vertical integration are

 Advantages: Past losses of an acquired subsidiary can be used to minimize

 Diversification: One of the reasons for conglomerate mergers is diversification of

 Managerial Motives: The management team of the acquiring firm tends to

An acquisition can be taxable or tax-free. In a taxable acquisition, shareholders of the selling

Enterprise Value 6560.

Cadbury & Kraft Deal

Cadbury stock price Kraft stock price reaction to the

Expected growth & Synergy

Cadbruy is highly complementry to Kraft’s geographical tootprint and will increase

SWOT analysis is a strategic planning tool to evaluate a company’s Strengths, Weaknesses,

SWOT Analysis OF Cadbury & Kraft

 Cadbury’s strong brand name: Cadbury is a major player in Indian confectionary

combined group. Cadbury’s main source of revenue is from chocolate market