Kraft starts $20 billion takeover battle for Cadbury – but is the deal a good idea?

One of the biggest takeover battles in recent corporate history is looming between US food giant Kraft and British confectionary company Cadbury, but a brand expert has warned that any deal between the companies will be difficult.

Cadbury share prices surged 37.85 % on the London stock exchange overnight, after the company formally rejected Kraft’s $19.6 billion, which the Cadbury Board says “fundamentally undervalues the Group and its prospects.”

“The Board is confident in Cadbury’s standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope and the continued successful delivery of its vision into action plan,” it says.

But Kraft – which first sought to buy the confectionary giant in 2007 – is widely expected to increase its bid in the hope of snaring the British giant. It said a Cadbury takeover would increase annual revenues to $US50 billion ($A58.73 billion) a year.

Brandology principal Michel Hogan says a takeover would threaten Cadbury’s long cultural and entrepreneurial history – which includes the creation of Australia’s first employee relations council.

“Quite specifically, it would be a takeover rather than a merger. Cadbury would literally become just another scalp on Kraft’s belt.”

“But that’s pretty much the only way Kraft grows: they let everyone else do the hard (R&D) yards and then they come in and say ‘oh, we’ll buy you’,” says Hogan.

Hogan agrees that the takeover bid was “far more weighted” on Kraft’s side rather than the Cadbury side.

“All over the world, Cadbury means chocolate – that’s pretty powerful and that’s obviously why Kraft wants to buy them. Kraft isn’t known for anything much, in the global sense.”

“And although Kraft’s resources would give the potential to develop new product lines, [Cadbury] seems to be doing that pretty well on their own already.

“The additional challenge of the American approach rather than the British approach would cause some real cultural issues.”