Kraft's Acquisition of Cadbury

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  • Topic: Nabisco, Investment, Kraft Foods
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  • Published : February 27, 2013
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Kraft’s Acquisition of Cadbury

The Kraft Foods Group Inc. (“Kraft”) operates in the food and beverage industry. Kraft is the U.S.’s #1 food company and #2 in the world (after Nestlé) in sales according to Hoover’s 2009. Their competitive advantages are: global scale [distribution around 150 countries, (LexisNexis, 2012)]; modern technology, equipment and R&D (“Kraft deploys SAP Tech. platform”, 2008); their partnerships with companies like AOL TWX, Rainforest Alliance, etc. (“Kraft Foods partners with Rainforest Alliance on sustainable coffee initiative”, 2009); and their supply chain (www.pincsolutions.com/kraft-foods, 2012). These advantages can attribute Kraft’s Net Profit Margin of 10.08%, compared to the industry’s average of 5.37% (Hoover’s, 2012).

On the other hand, Cadbury is a confectionery and is the industry's second-largest globally after Mars (Gray, 2009) and the company operates in approx. 50 countries worldwide. Their capabilities, brand popularity and innovation represent their main competitive advantages (“Using Open Innovation to Ensure Competitive Advantage”, 2010).

With the acquisition, Cadbury will benefit from Kraft’s scale (Birchall & Wiggins, 2009), their distribution in emerging markets (Elms, “Kraft and Cadbury) and their marketing muscle (English, 2009), which will result in a faster growth for Cadbury. Kraft will benefit by diversifying even more on related business (they already own Toblerone, Nutter Butter, etc,) and also from Cadbury’s capabilities (brand, innovation, know-how, etc.) that will likely represent as an additional source of value creation for Kraft. Together the companies will surely impair the competition: for example the termination of Hershey’s license to make and sell the Cadbury brands in the U.S. (30% of total sales, Hoover’s, 2008).

Currently Kraft if facing two major issues, and they are:
- The acquisition only makes sense if Kraft can obtain a return on investment capital bigger than the...
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