Rationale for the merger:
With the U.S. business relatively static, Kraft wanted to move overseas for growth.
The acquisition will give Kraft access to Europe and emerging markets like India.
Cadbury's brands will benefit from the Kraft Foods global scope, scale and array of proprietary technologies and processes.
The deal will help in improvements in operational efficiency, manufacturing and supply chain leading to cost savings to the tune of $675 million.
Benefits of the merger from Kraft's perspective:
They believed that the transaction would create a company with revenues of approximately $50 billion.
The new entity would be a global powerhouse in confectionery, snacks, and quick meals and it would have a prodigious portfolio including leading brands from all around the world.
Click on the picture:
Click on the picture:
The combined business would be well diversified geographically, and it would have leading positions & significant scale in important developing markets namely India, China, Brazil, and Russia.
There would be potential for the synergy of revenues over a period of time from investments in marketing, distribution and product development.
Acquisitions are something which is not new to Kraft Foods. In fact, diversification through mergers, acquisitions and divestitures is the major corporate growth policy followed by Kraft Foods.
Kraft's proposal about the merger was all about growth.
Kraft was eager to build upon Cadbury's iconic brands and a strong British heritage by providing increased investment and innovation.
Kraft was eager to build upon Cadbury's iconic brands and a strong British heritage by providing increased investment and innovation.
Moreover the Cadbury's brands were highly complementary to Kraft's portfolio and thus Cadbury would also benefit from Kraft Foods' scope and scale at the global level.
The best practices and facilities in the fields of sales & marketing and distribution and manufacturing, of both the companies could be utilized to augment the world class facilities of Kraft and Cadbury.
From the textbook, reasons for Global Mergers or Joint Ventures:
1. Spreading risk over different countries or regions.
Possible risks:
An economic downturn.
Increased competition.
Random variations.
2. Entering new markets and trade blocs.
From the textbook, reasons for Global Mergers or Joint Ventures:
1. Spreading risk over different countries or regions.
Possible risks:
An economic downturn.
Increased competition.
Random variations.
Starbucks acquired the Seattle Coffee Company, a UK-based chain of 64 shops in 1998.
3. Acquiring national and international brand names and patents.
Strong brand recognition is useful in building a business in a new country.
It reduces potential competition.
A business will not face the high risk, cost and uncertainty of launching a new product.
Care must be taken to preserve the integrity of the brand.
The Homebase story. Details here.
Lenovo a Chinese computer company bought the personal computer business of IBM in 2005 for £1.75bn.
Details here.
4. Securing resources or supplies.
5. Maintaining or increasing global competitiveness.
Mergers will hopefully lead to larger markets and synergies.
Joint ventures may be a legal requirement in some countries such as China.
6.Joint ventures reduce risk because of the local knowledge of the local firm.
An example is Marks and Spencer in India. Details here.
