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There is a nice story developing in the $16.7 billion Kraft bid for Cadburys’. There are possibly four players in this deal to be, Cadbury, Hershey, Kraft and Ferrero.

And there are some big time names advising the players, Akeel Sachak of Rothschild, Byron Trott of BDT Capital Partners.

In my opinion Hershey does not have what it takes to out bid Kraft so Hershey would need to develop alternative strategies. Second, Cadbury & Hershey don’t mix, not yet anyway. They tried in 2007 and failed.

This is the case of the small fish swallowing the big fish as Hershey’s market capitalization is $8.3 billion, Cadbury’s $18.1 billion and Kraft’s is $39.4 billion.  So that tells us quite a few things:

1. Hershey views the Kraft’s Cadbury bid as a threat to its long term independence. That is if Hershey does not succeed it will soon be bought out by someone else.

2. Hershey’s does not have the global reach that Kraft and for that matter even Cadbury has. Hershey generates 93% of sale in North America, while Cadbury has 16%.

3. A Kraft purchase of Cadbury would turn Cadbury from friend to foe overnight, and one with a formidable distribution network in the United States.

4. Hershey’s 93% North American sales says that Hershey cannot compete overseas. Hershey needs Cadbury more than Kraft needs Cadbury. Don’t get me wrong. This is not about distribution networks even though that is important. If, like me you have lived on both sides of the Atlantic, you know American chocolates don’t cut it when compared to European chocolates. Hershey needs the branded recipe.

Hershey needs Cadbury and will pay more.

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Disclosure: I’m a capitalist too, and my musings & opinions on this blog are for informational/educational purposes and part of my efforts to learn from the mistakes of other people. Hope you do, too. These musings are not to be taken as financial advise, and are based on data that is assumed to be correct. Therefore, my opinions are subject to change without notice. This blog is not intended to either negate or advocate any persons, entity, product, services or political position.

Contact: Ben Solomon, Managing Principal, QuantumRisk

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3 Comments

  1. The 2007 deal, I believe, was one strongly pursued by Cadbury. Cadbury’s CEO was willing to give up his role, they would keep the Hershey name and even move the headquarters to Pennsylvania.

    The Hershey CEO at the time was in agreement but the Trust scuttled the deal. They replaced the CEO and several board members. So while I agree with your article generally I would disagree that HSY tried to acquire Cadbury in 2007 and failed. If anything, Cadbury was more than willing to merge. Its just the Hershey Trust did not want to give up control of the company.

    • Paul, thanks for the info, but I did not say who tried to acquire whom in 2007 or what the arrangements was.

      This month several parties are trying to acquire Cadbury and this has been very interesting to watch.

      Also, in my opinion, outside the US the Cadbury brand is invaluable, may they should rename the company Cadbury-Hershey or CH as in CHocolate. We’ll have to wait and see what happens next.

      Thanks,
      Ben

      • Paul I see why you said Cadbury was more than willing but not the Trust.

        It is possible that if Kraft acquires Cadbury, and the Trust does not allow for anyone else to buy out Hershey it is possible that Hershey will eventually lose market share in the US.


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