Kraft – Cadbury Merger Seemingly Very Much On

Last year saw Mars chew up Wrigley for $23bn, right as the world was barrelling towards all-out recession. Now once again, makers of food you really shouldn’t eat too much of are treating mergers and acquisitions like nothing’s the matter – all signs are pointing to Cadbury’s getting bought by Kraft, despite having rejected their advances earlier in the week.

Kraft’s chief exec Irene Rosenfeld told analysts yesterday that “Given the complexion of the market and the global landscape, we believe it would be difficult for [Cadbury] to go it alone”. These two cats from the Wall Street Journal are saying the deal is definitely going to happen, in a vaguely homoerotic, suppressed bromance manner as they can’t seem to stop pawing at each other. And investors seem to think it’s going to happen too, sending Cadbury shares soaring yesterday. No doubt Hershey’s, Nestle, Kellogg and Pepsi, who have all also been linked with a deal, are indeed troubled by the idea of Kraft getting their hands on Cadbury’s, but whether Cadbury’s is just indulging them in order to drive the actual Kraft deal higher is another matter.

So with it looking like just a matter of “how much” rather than “if”, one analyst told Bloomberg, “We’re moving towards the end game of consolidation in confectionery” – in other words, the world is going to have just two or three companies worldwide making almost all of our teeth-rotting treats. It’s exhumed the old debate about homegrown British manufacturing, as another company looks set to sit alongside such Americanisms as processed cheese and Oreos – “it is really about what Britain should do for a living. If so many people are to survive on this small island we must do more than hawk shares”, says Carl Mortished in today’s Times. All the interviews with Bournville pensioners and sighing over purple foil suggest a certain amount of pointless sentimentality surrounding the opposition to this deal, but Mortished’s point is a good one – we’re giving up and cashing in before the race to new markets (India, Brazil etc) has even properly begun. Rosenfeld’s “submit, puny Brits” comments yesterday should be seen more as symptomatic of her steamrollering ambition, rather than any real forecast of Cadbury’s ability to survive in an ameliorating recession; Kraft make disgusting, oozing foods that only Americans will eat, while Cadbury’s make delicious chocolate that the whole world now seemingly loves.

But hawk shares we will, and the deal is a fillip for a City that has been twiddling its thumbs M&A-wise this year – Goldman Sachs, UBS, and Morgan Stanley are set to receive £100m in fees for putting the deal through, while Bloomberg reports today that Kraft are in talks to bag $8bn in financing via a bridge loan from Deutsche Bank and Citigroup.

So the deal looks like hoisting another American corporation onto the world stage at the expense of British expansion, with a bunch of non-British banks (with admittedly lots of British employees) coining it as the deal goes through. Sigh. Well, just as long as Kraft don’t shut down Cadbury World – as any child who grew up in Birmingham will tell you, it’s a museum where chocolate is fed to you in bar form at regular intervals throughout your trip, culminating in a frenzy of sugar-rushing school parties deliriously spending their pocket money on tat in the gift shop. There are cars shaped like Creme Eggs. If you ever want to create a high-margin business that embeds a semi-religious brand empathy in consumers from a very young age, build a museum in a chocolate factory.

Posted by Ben Beaumont-Thomas in Hot Money | September 9, 2009 12:38PM |