ACC 12- CH 1 - HOVERING KRAFT

http://www.economist.com/businessfinance/displayStory.cfm?story_id=14396368

Summary


The article reports that Kraft Foods, America’s largest food and beverage company, made a takeover purchase for Cadbury, a British confectioner, with a £10.2 billion ($16.7 billion) deal. The bid was, however, quickly rejected by Cadbury, deeming that the amount of money was a statement of fundamentally undervaluing the company. The purpose of this purchase was to form a global powerhouse in snacks, confectionary, and quick meals with a potential annual revenue of US $50 billion, according to Kraft Foods. The American giant stated it would expect to raise its long-term revenue growth target to more than 5 per cent from over 4 per cent should the transaction happen. In addition, its goal for growing per-share earnings would increase to between 9 and 11 percent from 7 to 9 percent. Furthermore, Cadbury also happens to be in good financial position as it nearly tripled its net profit in the first half of the year from the sale of beverages and a rise in chocolate consumption. Therefore, Kraft sees a lot of benefits in this project of working with Cadbury and there are many good reasons for them to believe so.

Connections

The connection to the chapter is the financial benefits (revenue) that two companies can receive if they collaborate. The article also taught us that making a deal with a company at a time when it's at a good financial position is vital to the success of both companies, as well. However, until the two sides can agree to terms on a deal that will see them work together, there will not be any financial benefits yet. Just as money is profit, it is also a problem in this case. That issue was evident in the article as it stated Cadbury rejected the bid from Kraft Foods to purchase it simply because it felt that the offer was too low. However, Kraft still made a smart move by trying to purchase the British firm that is doing so well financially, knowing that only positive results will come of it.

Reflections

As far as the finances go, I think that it would be good for the two companies to work together. If Kraft will merge with Cadbury it will become even more dominant in the market than it already is. Therefore, I think this deal benefits Kraft more than it does for Cadbury. Now, in terms of how good the product is, I would be disappointed to see Cadbury fall into America's hands because I don't think Kraft would be able to produce the same kind of good quality chocolate that Cadbury did. In addition, Cadbury has been one of Britain's very successful firms for a long time so it would be sad to see the British give up another product that they make so well.