Kraft-Cadbury Merger Will Spur More Deals
The mega-merger of the two confectionery champs will result in some more spinoffs, similar to the Anheuser-InBev deal
January 19, 2010
The merger of Kraft Foods and British confectioner Cadbury ranks as one of the biggest hostile deals ever in the food and beverage sector and the deal brings with it a number of opportunities for further M&A.
In Europe, the commission regulating trade has said Kraft will need to divest Polish and Romanian chocolate businesses in order to gain approval; the company responded by stating it will sell Wedel, a Polish snack brand, and Cadbury’s Romanian business.
Tim McLevish, the finance chief and executive vice president of Kraft, said the company is not planning further divestitures beyond what it announced with its Cadbury deal as part of meeting regulators’ requirements.
It should not be expected, however, that all of the merged unit’s businesses will be making divestitures. In fact, the Kraft-Cadbury entity could be poised to take advantage of additional opportunities at a time when many competitors are not financially equipped to do similar deals.
Irene Rosenfeld, chairman and chief executive of Kraft Foods, said the deal “gives us meaningful entry into India,” Mexico and “growing markets like Turkey and South Africa.” Rosenfeld said the merged company should substantially grow itself in Brazil, Russia and China as well.
Kraft’s buy of Cadbury builds on years of expansion across Europe; the company bought LU Biscuit from Groupe Danone in 2007, and in 2006 acquired United Biscuit’s operations in Spain and Portugal.
The Kraft-Cadbury deal is the biggest announced food/beverage merger of strategics since the Mars-Wrigley deal worth $23 billion was publicized in 2008.
Already, Kraft announced some divestiture plans leading up to the merger announcement. It sold its North American frozen-pizza business to Nestlé for $3.7 billion. It was expected that the Kraft-Cadbury deal would cause the buyer to shed assets to meet regulators' requirements, similar to the mega-merger of Anheuser-Busch and InBev.
Much of dealmaking in the food space has come in the form of distressed investors taking stakes in franchising companies looking to make the most of hard-hit valuations with well-known franchises. However, some other M&A has emerged over the course of the last 12 months.
When Linsalata Capital Partners acquired Spartan Foods of America (and the target’s film-themed Mystic Pizza brand) in late 2009, the private-equity investor took a small investment from financing provider Golub Capital.
Additionally, the Green Mountain Coffee Roasters bidding war to win Diedrich Coffee late last year afforded another example of how the packaged foods space is set to see more consolidation as consumers pursue the cheapest options.
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