Kraft Seeks to Expand Food Empire

Kraft Foods, the U.S. food products giant, has made a hostile bid to take over Cadbury Plc. after Cadbury’s board rejected a Kraft offer of £10.2 billion. Predictably, Cadbury’s share prices rose while Kraft’s fell as shareholders on the respective sides hope for a battle of bids. Kraft’s CEO implied that Cadbury had limited growth potential on its own while, in combination with Kraft, it would be part of a “global powerhouse” of snack foods and confectionery.

This take-over bid  shows that the process of consolidation in the candy industry continues at all levels. At the industrial  and intermediate level Barry Callebaut has established itself as the largest producer and ADM’s purchase of the German firm Schokinag in June has further limited competition in that area. Kraft’s move continues this trend at the retail level.

I doubt that it will bring any benefits except for Kraft which would then control a large share of the candy market across the continents and the financial firms who broker this deal and make a killing on the fees. Kraft promised to save one UK factory in Somerdale and invest in Cadbury’s flagship plant in Bourneville. But as a commentator on the Guardian’s website said: “A U.S. buyout saving jobs…Yeah, right.”

My bigger worry is Cadbury’s recent commitment to fairtrade sourcing. There is no reason to believe that Kraft will continue that commitment. U.S. firms generally have a poor record when it comes to fairtrade.

UPDATE: A Bloomberg report indicates, that Kraft’s primary motive may be its desire to expand internationally, especially the emerging markets. India, again, looms large on the horizon there. Apparently, mare than 60 percent of Kraft’s sales from from North America. Cadbury, on the other hand, has seen the fastest growth in its developing areas markets which represent 40 percent of its sales.

SECOND UPDATE: Apparently Hershey does not want to be left out in the cold and is thinking about a rival bid. Although Hershey is much smaller than Kraft, it has a history of working with Cadbury and distributes Cabury products in the U.S.

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