Final Chal Raha

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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


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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 ChaudhryFaculty Guide


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DECLARATION

I hereby declare that this Project on MERGER & ACQUISITION WITH RESPECT TOKRAFT & 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


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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 HAMDANMBA GEN 2009-11

2009-502-068


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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


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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 newspapers

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? Toanswer 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 Foodsand Cadbury creates a global powerhouse in snacks, confectionery and quick meals.

Cadbury was originally begun in 1824 by Wealthy Quaker John Cadbury in Birmingham andit was initially opened a shop selling coffee, tea and chocolate and cocoa drinks. Cadburysintroduced in 1860s Cocoa Essence, which was made with pure cocoa butter, was the

beginning of todays chocolate. Cadbury manufactured its first milk chocolate in 1897 andlater they moved all their manufacturing to Bourneville. The Bourneville factory employed


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2,600 people and Cadbury was incorporated as a limited company. Cadbury introduced theirfamous brand Dairy Milk in 1905.

Later the company made its first major merger in 1921 with its rival JS Fry & Sons and it ledto 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 forworking and living conditions in Victorian Britain. By the mid-1930s, more than 100 acresaround the Bourneville factory were devoted to recreation.

In 1969, Cadbury merged with Schweppes, which was a well-known British brand thatmanufactured carbonated mineral water and soft drinks and formed Cadbury Schweppes.Later it became a powerful force in the global food industry by acquiring Sunkist, CanadaDry, Typhoo Tea and some others companies.

Cadbury Schweppes revealed in 2007 that it was planning to split its business into twoseparate entities: one focusing on its main chocolate and confectionery market; the other onits US drinks business. The demerger took effect in 2008, with the drinks business becomingDr. Pepper Snapple Group Inc. Cadburys main presence is in the sectors of chocolate, gumand 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 ofexistence, it today has five company-owned manufacturing facilities at Thane, Induri (Pune)and Malanpur (Gwalior), Bangalore and Baddi (Himachal Pradesh) and 4 sales offices (NewDelhi, 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 maintainedits undisputed leadership over the years. Some of the key brands in India are Cadbury DairyMilk, 5 Star, Perk, clairs and Celebrations.

Since Cadbury started in India more than 60 years ago, Cadbury is the largest confectioner inthe country, commanding 70% of India's chocolate market and 30% in sugar boiled

confectionery category. Cadburys famous brands in India are Dairy Milk, 5 Star, Perk,Eclairs and malted milk additive Bournvita. With annual revenues of approximately $50billion, the combined company is the world's second largest food company, making deliciousproducts for billions of consumers in more than 160 countries. The company employsapproximately 140,000 people and has operations in more than 70 countries.

KRAFT FOOD Inc.


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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 significantcontributions to the food processing sector in the America.

Kraft was originally founded in 1903 by J.L. Kraft in Chicago and their initial business waspurchasing and reselling cheese. The company began manufacturing processed cheese in1914, 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 CheeseCorporation.

Later in 1930, Kraft-Phoenix Cheese Corporation was bought by National Dairy ProductsCorporation, but the company continued as an independent subsidiary of National DairyProducts 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 ofPostum Cereal Company. The Postum Cereal Company acquired the Jell-O Company in 1925and the allied companies went through various name changes and finally renamed as GeneralFoods Corporation. The General Foods Corporation was in the business of quick freezingfood, instant coffee and Tang breakfast beverage crystals.The company Oscar Mayer had its roots in the meat business since 1873 and was specialistsin 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 processedmeat 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 Nestl. In 2008 Kraft foods Inc has generated $ 42 billion in revenue, with

90,000 employees spread over 70 countries in the world


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CHAPTER 1

LITERATURE REVIEW


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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 willact 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 wediscuss 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 occurswhen a private company that has strong prospects and is eager to raise financing buys a


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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 onecompany 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.


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CLASSIFICATIONS OF MERGERS & ACQUISITION

Horizontal Merger

They result in forming large firm which can give the benefit of economics of scaleand 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 ofdifferent activities of the value chain helps in reconciliation of conflicting interest andmotives. Opportunity is there to gain competitive power through controlling input

prices for own consumption and higher prices. Such merger have potential to increaseentry 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.


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Such mergers require special competence and skill to manage different function suchas R&D, Operation, Marketing, etc. pertaining to each diversified business. Synergyhelps gain competitiveness and cost advantage provided there are certain levels ofrelatedness, and assets and capabilities acquired are complementary to the existing

ones, even though product market scope of each business is different. Ex: Merger ofInfo 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


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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, theassumption made on revenue and capital expenditure, quality of asset indicated in the

balance sheet vis--vis those physically available as well as disclosed/undisclosed

legal encumbrances, provision made and finally level of performance againstdomestic and global benchmark.

Valuation of the target

Investors in a company that is aiming to take over another one must determinewhether the purchase will be beneficial to them. In order to do so, they must askthemselves 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 aspossible, 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 tolook at comparable companies in an industry, but deal makers employ a variety ofother methods and tools when assessing a target company. Here are just a few ofthem: Comparative Ratios - The following are two examples of the many

comparative metrics on which acquiring companies may base their offers:


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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'sP/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


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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 ofthe acquired company through issuing debenture.

Stock for stock, in which the acquiring company issue its own shares to buythe shares of the acquired company.

.


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CHAPTER 2

RESEARCH

METHODOLOGY


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CHAPTER 3

DATA ANALYSIS


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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. Thelast 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 thepurpose 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


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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 analyzedboth horizontally and vertically according to the following: -

There are two types of motives involved in merger and acquisition and these are Explicitand Implicit motives.

Explicit Motives

Synergy: Synergy means that the merged firm will have a greater value than thesum 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 costachieved by producing a large volume of a product.Horizontal mergers aim at achieving economies of scale. This phenomenoncontinues while the firm grows to its optimal size, after which a firm experiencesdiseconomies of scale.

Economies of Vertical Integration: Economies of vertical integration areachieved in vertical mergers. It makes coordination of closely related operating

activities easier.


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Entry to New Markets and Industries: A firm that wants to enter a new marketbut lacks the know-how can do so through the purchase of an existing player inthat product or geographical market. This makes the two firms worth moretogether than separately.

Advantages: Past losses of an acquired subsidiary can be used to minimizepresent profits of the parent company and thus lower tax bills. Thus, firms have areason to buy firms that have accumulated tax losses.

Diversification: One of the reasons for conglomerate mergers is diversification ofrisk. There are two types of risks associated with businesses- systematic andunsystematic risk. Systematic variability cannot be removed by diversification andhence mergers are not able to eliminate this risk. Though, unsystematic risk can bespread through mergers.

Managerial Motives: The management team of the acquiring firm tends tobenefit from the merger activity. The four most important managerial motives formerger are empire building, status, power and remuneration.

Implicit Motives

Hubris: It is like a maturity test for the owners and the company boards ofdirectors 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 todo 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


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Valuation throughDCF

Projected

2004 2005 2006

2007

2008

2009 2010 2011 2012 2013

Free Cash flow 475 665 472 527 124 133.35

143.41

154.23

165.87

178.38

Present Value OfCash flow

0 0 0 0 0 121.23

118.52

115.88

113.29

110.76

Total Present Value 579.676Terminal Value 9632.3

6Pv Of Terminalvalue

5980.94

Enterprise Value 6560.62

Amt in poundmillion

Cadbury & Kraft Deal

After almost 1 year of twists and turns, Kraft has won the race to acquire Cadbury giantgroup. The bidding war between Kraft and British company Cadbury was riveting and endedin 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 beenseen in the past that the stock price of the acquired company are increased and of theacquiring company are decreased, but in this case it was vice a versa. It might be due toundervaluation of the acquired company. Prior of the deal the stock price of Cadbury wasshowing hardly any changes but within 3 month of deal the stock price of Cadbury has shownthe growth of around 3 %. Whereas the stock price of kraft ltd has shown the growth of 1.5 %on the deal date.


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Investors were worried about the financial risks of such a costly deal. Media reaction to the

deal had been positive to the deal. Almost all the reports were adulatory while editorialspraised the coming of age of Indian industry. A prominent financial daily presented the dealalmost as revenge of the natives against the old colonial masters with a picture of Londoncovered 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 concentratedon supermarket and groceries where margins are lower, so when they are together, overalldistribution will be higher for both and the margins will increase.

Cadbury has big business in some emerging markets like India, South Africa, Mexico andTurkey where Kraft is relatively weak or not existing; similarly Kraft also has strongemerging markets likes Brazil and China which will help the Cadbury products.

There are complementary products, when two companies bring together their portfolio, inmany markets they enjoy benefits of a larger and well balanced products. The tie up willgenerate the number one global confectionery player with 14.8% share slightly above of marswho has 14.6%.

The combined company target is long term organic revenue growth in excess of 5% andsustainable long term eps growth of 9 to 11%, whereas Kraft targets long term organicgrowth of 4% and EPS growth 7 to 9%.

Cadbruy is highly complementry to Krafts geographical tootprint and will increasedeveloping markets contribution to Krafts net revenue from about 20% to about 25%.

Cadbury stock price Kraft stock price


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Kraft management has been banging the familiar synergy drum hard regarding thesignificance of the acquisition, and calm itself a disciplined buyer. While increasing exposureto developing markets does sound appealing and increasing top line growth by 1 % on a largerevenue 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 EBITDAmargins 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 marginshave 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 linegrowth of 4 %, grow EPS at the high end of its targeted 7-9% range, and achieve higher assetefficiencey via productivity gains as mangement has been promoising. Its shares could beworth as much as &32. In addition, kraft will likely use $8 billion new debt to finance abouthalf 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 companys Strengths, Weaknesses,Opportunities, and Threats involved in a project or in a business venture. It provides a goodoverview whether the companys 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

Cadburys strong brand name Different corporate culturesEstablished distribution network of Cadbury Previous failure of Kraft in IndiaKrafts broad product range

Opportunities Threats

Huge market potential CompetitionInnovation Of products Different local tastes, substitute products

Strengths

Cadburys strong brand name: Cadbury is a major player in Indian confectionarysegment. It gives a strong and complementary strategic fit in Indian market for the


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combined group. Cadburys main source of revenue is from chocolate marketwhich is 70%. It captured the market with affordable prices.

1

Distribution networks: Cadbury is having a very strong distribution network. It ishaving tie-up with 1.2 million shops throughout India. This is an added advantageto Kraft, as it need not start from the scratch to form distribution networks.

Krafts broad product range: Kraft is having brands ranging from cheese, biscuitsto chocolates and its products are famous worldwide. So the combined group canoffer different and new variety of products to the Indian consumers.

Weaknesses

Different corporate cultures: Since the acquisition has happened recently, Kraftand Cadbury have a lot to work on integrating their cultures and work practices tocreate a strong synergy between both companies. Differences in managementstyles and operating procedures can be hard to resolve. So it will take some towork 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 enterinto Indian market with the introduction of powered orange drink. Kraft cheeseand 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 inIndia.

Opportunities

Huge market potential: India is a fast developing country maintaining an averagegrowth rate 8-10% even in the economic slowdown. Both biscuit and snacksectors are experiencing a huge growth around 15-20% every year. Kraft-Cadburycan 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 marketpotential.

Innovation of products: A large segment of snacks industry is still occupied by thetraditional Indian sweets and snacks. So if Kraft-Cadbury come-up with somegood innovative products tailored to the Indian tastes, then there is hugeopportunity to tap that sector.

Threats

Competition: There is already huge competition from the existing players whohave strong position in the Indian market such as Britannia, Nestle, Parle, Pepsi


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co, and Amul. Some of those competitors have very diverse objectives andpowerful strategies to expand their market share, so competition from existingvendors 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. Eachstate is having its own traditional food preferences and life styles. So looking atIndia as one entity and introducing products that are suitable and acceptable tomajority of states is a challenging task.

Five Forces Model

Porters Five-Forces Model is a key analytical tool to find out how strong are the competitiveforces and to understand where power lies in a business situation. Porters five forces modelis 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 feltthat application of Porters five forces methodology will provide us a good analysis for ourfirst question. So we have applied five forces model in the context of Indian marketconditions, especially focusing those sectors of biscuits and snacks. Applying Porters five

forces model to the marketing conditions, on one hand it will provide us a clear idea abouthow much is threat due to the entry of new players, how strong is the bargaining power of thesuppliers, how well is the buying power of buyers and how much influence they can cast onthe market conditions. On other hand it will gives us an idea about how strong is thecompetitive rivalry from the competitors providing products of similar category and how wellis the threat due to the substitution products that are offered as alternatives to the Kraft-Cadburys intended products. Having a clear-cut understanding of where power lies, willinfluence in crafting strategy to take advantage of favorable forces and to improve situationwhere the forces are unfavorable.

Five Forces Model


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Suppliers of inputs

The basic ingredients and commodities used in biscuits and snack sectors areprimarily wheat, sugar, salt etc. India is being a primarily agricultural country, thereare many suppliers providing these commodities to the companies producing biscuitsand snacks, so they act as players with having very little or no power over the controlof 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 acountry 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 andsnack sectors, so most of the companies are targeting enter into emergingmarkets like India. Hence there will be many entry candidates.

Buyers

Buyers cost to switch brands is low as the prices of products of biscuit/snacksare at the basic level.


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The population of buyers is huge.

Buyer demand is growing relatively quickly because of rise in the incomelevels.

In rural areas the buyers dont 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 isstrong.

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 toughcompetition as substitute products. Especially in rural areas these traditional productshave strong influence and are offered at very affordable prices. So we consider themas Strong force.

Impact of Deal On Brand Valuation

Question 1: Age Group


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Merger and Acquisition

Question 2: Category Of The sample Size

Question 3: Is there any change in the policies after the deal?


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Question 4: If yes, then in which field?

Question 5; whether supply policies are better know


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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


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Question 8; what you think who is going to get more benefits from the deal

Question 9 In which field ( for Cadbury)


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For Kraft

Question 10; Which have more competitive promotional policies with respect to itscompetitors


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CHAPTER 4

CONCLUSION &RECOMMENDATIONS


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Conclusions and Recommendations

Due to annual growth of 15-20% in biscuit and snack industries in India, Kraft-Cadburygroup has a huge opportunity for entering/expanding into these sectors. Also, strong presenceof 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 modelreveals that there is a tough competition from the existing companies in these sectors. Ofcourse there are lot of issues on which Kraft-Cadbury group has to work on, such as mergingof 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 muchlucrative 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, sousing Cadbury brand name along with Krafts brand name will give a native feeling tothe consumers. Also Cadburys strong distribution network is an added asserts, Kraft-Cadbury should make use of it to promote new products to reach the rural as well asthe 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 Indianmarket. But Kraft-Cadbury group has to know what the local markets are ready forand 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 Indianmarket, innovation is a critical aspect as still there is strong competition fromtraditional sweets and snacks. So Kraft-Cadbury should be innovative and creative indesigning 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. Sodesigning products that suits to many different tastes is quite challenging. In this caseKraft-Cadbury group can take the approach followed by PepsiCo in launching a verysuccessful snack brand KurKure, which was launched in different flavors to suit todifferent 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 Cadburyhas 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


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effectively they can take them to consumers using advertisements and other propaganda in localized trends. Furthermore, introducing new products into themarket, 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 upwith affordable prices for their products. The buyers segment in India is quitestratified 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 therural markets by having products with low price range, at the same time productshaving 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 theurban areas and thereby to target to a wider consumer base.


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Annexure

A. Questioner

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.............

CADBURY & KRAFT DEAL


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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


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Cash Flow2008 2007 2006 2005 2004

Net Cash from operatingActivities 469 812 620 891 745Additional Funding of past

service pension 30 48 67 31 0Demerger 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 5Inventory and trade and otherreceivables 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 -1696Liabilities Directly associated Withasset -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


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Note: Amount in Pound millionLinked: invetis.com/cadbury-ir/report/ar-2008.pdf


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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: Definitionhttp://www.investopedia.com/university/mergers/mergers1.asp

8. A.A. Thompson & A.J. Strickland (2004): Crafting and Executing Strategy: TheQuest for Competitive Advantage: Concepts and CASES, McGraw Hill, 16thedition.

9. India Knowledge Wharton: Sweet Surrender: Can Kraft's Cadbury Acquisition Help ItTap 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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