Kraft gets a sweet tooth

After hanging tough for months, Cadbury has finally capitulated to Kraft – or more to the point, was made to capitulate to Kraft by institutional investors more interested in the short-term payout Kraft’s offer promised than the long-term good of the company they held shares in.

The upside of the take-over for Kraft is obvious – they get an instant and substantial leg up in one of the few areas of the food industry they have struggled in. The benefit to Cadbury of joining the vast, convoluted megalopolis is much less sure. Cadbury and Cadbury products will undoubtably retain their names, however the underlying structure, values and drivers of the company may not be so lucky.

There are many factors that drive a successful takeover and just about as many on the flip side that can cause it to fail. The key in this case may well be how much operating autonomy Kraft allows Cadbury to maintain.

The Brand of Cadbury is one built on nearly 200 years of focus on confectionary. Starting and still most strongly associated with chocolate, millions around the world have a deep affection for the “glass and a half” in every block of Dairy Milk Chocolate. As long as Kraft allows Cadbury to continue its focus without major intervention, the value of its purchase should remain intact.

Every year sees company acquisitions and takeovers. True mergers are very rare although the word is often used to make the people on the other end of the acquisition feel better about the whole thing. The driving force is always financial, however when they fail (and they often do), it is nearly always because of fit (or lack of it).

A client of mine several years ago had made an acquisition of another company. Seemed like a good idea at the time and meant the addition of an extended set of software products that was supposed to increase market share and opportunity to cross-sell.

It didn’t work out that way. The acquired company had a very different culture and set of operating principles, which of course manifested in their products. My client’s products were known for being very intuitive and easy to use, their culture was quite collaborative and easy going.

In contrast, the acquired company was much more structured and regimented and likewise their products more visibly complex and much less user-friendly.

Correspondingly the customer bases of each had different drivers and the cross-sell never happened. In fact, the acquired company products were never accepted by the customers and had to be redeveloped to fit with the product mix.

Over time the acquired company was integrated and people uncomfortable with the more laid back culture left. What on paper had looked like a great idea didn’t quite pan out that way. The hoped for sales synergy never materialised and the acquisition turned out to be a huge drain on resources. Everyone lived to tell the tale, but given a do-over, they probably wouldn’t.

Stories like this one abound in the world of mergers and acquisitions.

I am sure both Kraft and Cadbury will survive. After all, it is in Kraft’s best interests to maintain a strong Cadbury Brand, but whether the focus and purpose of Cadbury that have sustained them survives only time will tell.

Michel is a Brand Advocate. Through her work with Brandology here in Australia and in the United States, she helps organisations recognize who they are and align that with what they do and say, to build more authentic and sustainable brands. She also publishes the Brand thought leadership blog – Brand Alignment.