The Sharks are Circling Cadbury

Ok, I’ve been rather quiet on the Cadbury story since it first broke some weeks ago. Here’s a quick recap. Kraft Foods made a  takeover bid for Cadbury offering some $17 billion for the British company. Cadbury was quick to reject the offer as too low and its CEO seemed eager to preserve the company as an independent chocolate maker (or maybe he was just trying to get Kraft to sweeten the pot). Then Kraft made it official and made a hostile bid, trying to lure Cadbury’s shareholders away from management. The Hershey’s got into the game quickly joined by Ferrero (you know, the makers of Nutella). Rumors flew but nothing really happened.

So let’s look at the picture. Kraft has a obvious interest in Cadbury’s chocolate empire because Cadbury is present in markets that Kraft would like to tap. Why reinvent the wheel if you can buy one. Yup, you guessed it, the emerging markets are rearing their ugly heads again, India, to be specific.

But that is one of the reasons why Cadbury is resisting Kraft’s offer. The company thinks that’s the reason why Kraft should pony up a lot more money. Cadbury controls 70 percent of the chocolate market in India (still in its infancy) and that market is growing by 20 percent a year. The only other manufacturer in India is Nestlé, all the others are imports available only sporadically in shops that Indians don’t frequent.

Then Cadbury played its heritage card. Invoking the Quaker capitalism of the Cadbury family, CEO Stitzer, complained that his competitors and suitors don’t have the same heritage. I think that heritage claim is bit overblown.

Yes, John Cadbury supported all kinds of progressive organizations in his time, but when Henry Nevinson proved in 1905 that the company was buying  cocoa produced by slave labor in São Tomé, he dragged his feet for four years before switching his supply lines to the Gold Coast (Ghana). Coincidentally, it took four years to ramp up production there. Check out Lowell Satre’s great book Chocolate on Trial to get the whole story.

There is the real question whether or not Kraft would maintain the fairtrade commitment recently made by Cadbury. Kraft gets some (rather little) of its cocoa certified by the Rainforest Alliance and readers of this blog know how I feel about that. Switching from fairtrade to RA certification would be a step down in my opinion.

Enter Ferrero, a privately held company about as secretive as Mars. Like Hershey, the company has little presence in the very markets in which Cadbury thrives. Also like Hershey, the company doesn’t have enough cash to buy Cadbury outright. So the two are plotting a common strategy, pooling their resources to grab Cadbury from under Kraft’s nose.

In the end, it’s a lot of fighting over chocolate that’s not very good. As Guardian Blogger Tim Hayward has described it:

Hershey are the US firm responsible for two of the most egregious international crimes against chocolate: Reese’s Peanut Butter Cups and Hershey’s Kisses….Unfortunately, they have formed a satanic pact with Ferrero SpA whose charge sheet includes inter alia Nutella, the appalling Kinder Surprise, and God help us all, that internationally recognised symbol of ambassadorial elegance, Ferrero Rocher – a pellet of MDF chippings enrobed in a chocolate marginally less unpleasant to chew than the foil wrapper.

Of course, Cadbury chocolate is nothing to brag about either. So stay tuned.

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