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Kraft Foods Inc. and Cadbury PLC (A and B)
Case 9 20 2016 001A-B
Case published in the International Journal of Case Studies in Management, Vol. 14, No. 1
Author : 
Languages : 
  • English
Keywords: 
  • M&As,
  • Strategy,
  • Mixed payment,
  • Synergy effects,
  • Divestiture
Year of production : 
2015
Registration date : 
2016-03-17
Teaching notes included : 
Yes
Case document count : 
2
Abstract

This case comprises two parts. In “Kraft Foods Inc. and Cadbury PLC – Part A – A Nutritious Association?”, an investor wonders whether the acquisition of Cadbury is based on sound business sense and whether it will be beneficial to him as a Kraft Foods shareholder. He also puzzles over the value of the mixed payment offered to Cadbury’s shareholders. Details are provided about Kraft Foods’s activities and businesses, followed by a description of Cadbury. Each company’s historical financial statements are appended. Kraft Foods’s rationale for the acquisition is provided, together with the structure of the original and final offers. “Kraft Foods Inc. and Cadbury PLC – Part B – A Sweet Divorce?”, which focuses on the subsequent “demerger” of the Snacks division less than two years later, can be analyzed in its own right as a second step. Alternatively, the instructor can use it as a conclusion to highlight points related to strategy and disclosure or to the ex-post measurement of synergy effects.

Primary domain : 
Finance
Secondary domain : 
Management  - Strategy
Sectors : 
  • Consumer goods
Source : 
HEC Montréal
Type : 
Traditional case (Descriptive or analytical case)
Type of data used in the production of the case : 
Factual data that is public and free of potentially litigious content
Event location : 
United States and United Kingdom
Year of start of the event : 
2009
Year the event ended : 
2011
Business size : 
Multinational
Main themes covered
  • Acquisition motives
  • Identification and evaluation of synergy effects
  • Examination of the acquisition premium
  • The exchange ratio in a mixed payment
  • Post-acquisition results
  • Spin-offs
  • Acquisition/divestiture strategy
Teaching objectives

Part A: Encourage students to look beyond the company's qualitative description of the benefits of the acquisition so as to discover the real motives underlying the marketing-based presentation. Discuss the determination of a “rational” control premium from the point of view of the acquirer’s shareholders and the reasonableness of the offered premium.

Part B: Show how difficult it is to measure the results (the realization of synergy effects) after the fact and help students to understand the limits of strategy disclosure.

Concepts and theories related to the case

This case is about financial value creation through an acquisition. It requires some deftness in the analysis of financial statements (although not at an advanced level) and relies on the discounted cash flow model of valuation and the value additivity principle. Students must also be able to relate announced strategic motives to the practical day-to-day operations of a company.