Companies are shunned in the courtship dance all the time. Part of the time, it’s about positioning so as to extract more money for their shareholders. At other times, it’s about lack of fit or simply a lack of interest. It’s a high stakes game that is played out across the marketplace every day, and across all sized and types of business.
In recent weeks, the stories surrounding Kraft Foods unsolicited takeover offer of Cadbury PLX, the world’s second largest confectionary company is interesting, and telling. Cadbury’s Chairman Roger Carr said in a letter on Septermber 12 to Kraft’s CEO Irene Rosenfeld (posted on company’s website here ):
In my letter of 31st August, I informed you that the Board had rejected your unsolicited proposal on the grounds that it is unattractive and fundamentally undervalues Cadbury. Under your proposal, Cadbury would be absorbed into Kraft’s low growth, conglomerate business model, an unappealing prospect which contrasts sharply with our strategy to be a pure play confectionery company… Your proposal is for Cadbury shareholders to exchange shares in a pure-play confectionery business for cash and shares in Kraft, a company with a considerably less focused business mix and historically lower growth…
The story around Cadbury, Kraft and other potential suitors is just beginning. However, Cadbury’s Chairman Roger Carr has just created a huge problem for Kraft by stating it was a low growth, conglomerate business model with considerably less focus. Now that has to hurt. So what can we surmise from this?
- Cadbury’s Roger Carr has little respect for Kraft Foods, nor Kraft’s CEO Irene Rosenfeld.
- Cadbury views itself as being in the drivers seat, and is willing to be highly vocal and transparent in the process.
- Cadbury’s Richard Carr must be respected and feared by Kraft going forward.
In my opinion, from this point forward, Kraft has a problem. First they have a huge credibility problem. After all being referred to as ”low growth” and “less focused” doesn’t add value in the marketplace. In fact, I expect the Kraft brand could lose significant value in the marketplace. Secondly, Kraft’s internal problems have just been magnified and they will begin to filter out into the marketplace. Yes, their silent problems will no longer be silent.
Bottom Line: Acquisitions are always tricky business, and more often than not, they underdeliver. In this case however, Kraft has just been delivered a Without Warning event that they didn’t see coming. Kraft in my opinion has been a challenged business for years, now their challenges have just become significantly greater as their silent problems will now be exposed.
