CHICAGO (AdAge.com) -- It took four months, a concerted PR offensive, a surprising divestiture and a substantial price hike, but Kraft appears poised to finally make the move that will solidify its global credentials: nabbing confectionery giant Cadbury. Kraft CEO Irene Rosenfeld secured unanimous approval of Cadbury's board late last night with a $19 billion offer of cash and stock.
"Together we will be a global leader in the confectionery category and we'll have leading market shares in many countries," Ms. Rosenfeld said in a call with investors this morning. "This is important because we believe scale will be an increasing source of competitive advantage in both the confectionery category and the food industry as a whole."
The combined $50 billion company would command about 15% of the world's confectionery market. Kraft, in snagging Cadbury gum brands Dentyne, Trident and Stride, will still trail Mars in the rapidly growing candy segment. (Mars acquired Wrigley in 2008.) While the shareholders have until Feb. 2 to approve the sale, the odds have clearly tipped in Kraft's favor. Cadbury executives Roger Carr and Todd Stitzer have both courted bids from Hershey, which has licensing agreements to market and distribute its brands in the U.S. Kraft executives maintain, and analysts agree, that the new offer is likely to dissuade any competition for the confectioner.
Lack of action also poses consequence for Hershey, as the global confectionery market will shift following the merger. "We see the deal as a double-edged sword for Hershey and its long-term prospects," Stifel Nicolaus analyst Chris Growe wrote in a research note. "First, international growth will likely be more difficult amidst stronger competition. Second, there are fewer potential players for further consolidation for Hershey to acquire or be acquired by, ultimately diminishing Hershey's valuation prospects in our view."
Aside from the higher-than-average debt, Ms. Rosenfeld paints a rosy picture of the new Kraft. She said Kraft's focus will be on "growth categories," and "continuing to transform Kraft into the world's leading snacks, confectionery and quick meals company." To that end, Kraft is looking to expand its international footprint, making use of Cadbury's international distribution channels to bring its iconic products to greater prominence in growing markets such as Brazil, India, Russia and China.
Ms. Rosenfeld, who sold off all the company's pizza brands, including DiGiorno and Tombstone, to raise money for the purchase, said the company isn't planning any significant divestitures, though some small sales may be required by antitrust authorities. While extremely popular in the U.S., Kraft didn't see the pizza brands as a viable component of the company's global strategy.
"We've expanded our footprint in developing markets to capitalize on both population and economic growth trends," Ms. Rosenfeld said. "This further creates opportunities over the long term as consumers trade up to more of our products." She added that while Kraft has well-developed channels in grocery, the combined company will be expanding its presence in convenience stores and gas stations.
"Kraft Foods is strong in modern retail channels, that is, traditional grocery stores," Ms. Rosenfeld said. "At the same time, Cadbury is very strong in instant-consumption channels. This is an important class of trade in both developed and developing markets, in part because instant consumption channels provide incremental reach to large retail formats. What's more, these channels typically offer opportunities for both higher growth and higher margins."
Of course it remains to be seen what Kraft, which has spent the past two years overhauling its own marketing, will do with a new stable of well-known brands. Cadbury's biggest-spending U.S. brands -- Trident, Stride and Dentyne -- are handled by JWT, New York; and McCann Erickson, New York. Kraft worked extensively with JWT Chicago, until 2007, when it began draining the agency of big brands such as Kraft Singles, Oscar Mayer, Grey Poupon, Ritz and Triscuit.