The Acquisition of by Group Inc. Presented by Blake Downward (CFO of Kraft Foods) Asif Mahmud (CMO of Kraft Foods) Contents

Who are Kraft Foods Group Inc.?

Who are Cadbury Enterprises Ltd?

The attraction

How did it all begin?

The details

Capital Budgeting

Where are we today? (Post Acquisition)

Managing the Managers! Kraft Foods Group Kraft Foods Group

Kraft is a US company which was founded in 1923 2nd largest food company in the world with presence in over 150 countries 11 established brands each bringing in $1billion globally in revenue Established in developed markets; North America and Europe Highly competitive market with low margins Small presence in emerging markets Famous for , Chips Ahoy! and Kraft Foods Group Cadbury Enterprises Ltd

Chinese Brand Name is 吉百利 (Jíbǎilì) Confectionary Company (糕饼) (Gāobǐng) Founded in 1824 by John Cadbury 70,000 employees globally prior to the acquisition Revenue in excess of £5 billion Export over 200 products to 30 countries worldwide Cadbury’s subsidiary based in Guangzhou, China Chocolate market is worth over £10 trillion annually Market growth is 7.4% and Cadbury’s are growing at 8.6% Top 3 competitors are Hershey’s, Mars and Nestle Famous for Dairy , Crème Egg and Roses Why Purchase Cadbury?

Established brand with presence in existing and emerging markets (40% of total sales) Allows Kraft to diversify into these new markets Chocolate & chewing gum are high margin products (14%) Enables Kraft to become the largest confectioner (14.8%) Confectionary is a resilient growing market Iconic brands – Cadbury, , & Access to shelf space The UK is politically and economically stable Double taxation treaty Long term investment Why Purchase Cadbury? Why Purchase Cadbury? Why Purchase Cadbury? How did it all begin?

28th of August 2009 – Initial approach of 755p per share is rejected 7th of September – Our approach is made public but bid value has decreased 30th of September – Deadline for bid set to the 9/11/2009 by the UK Takeover Panel 4th of December – Official bid document presented to Cadbury Shareholders 5th of January 2010 – Offer increased On the 19th of January 2010, Kraft complete takeover of Cadbury The Details

Currency Conditions – effect of the exchange rates

Cash-flows / Hedging

USD/GBP monthly std. dev. 2.21%

FTSE/NASDAQ corr. 0.6864

Dividends to parent The Details

Currency Conditions – effect of the exchange rates Cash-flows / Hedging The Details

Initial bid (28% premium)

Final bid (44% premium)

$19.6 billion USD (13 x of Cadbury’s 2009 EBITDA)

Funding the acquisition The Details

Cash (GBP) # Kraft Shares Kraft Price (USD) Exchange Rate Total (GBP) Cadbury Price (GBP) Premium

7/09/2009 3.00 0.2589 28.1 0.611 7.44 5.81 28%

19/01/2010 5.10 0.1874 29.58 0.6109 8.48 8.37 1% The Details

Funding the acquisition Kraft financed this purchase with a combination of debt and equity. New share issue – Kraft issued 265 million shares as part of the payment (15% increase in number of shares) Sold pizza business to Nestle Secured $9.2 billion (USD) debt finance from Citigroup and Deutsche Bank 50% debt finance Capital Budgeting

Cost Savings through economies of scale Cadbury’s investment into R&D and new Technology Less barriers to entry (Shelf Space) Opportunity to increase margins IT cost savings of $430 million annually Potential cost savings of $675 million ($300million in procurement, manufacturing & logistics, $250million in general & administrative, $100million in marketing & sales Reduction in number of suppliers to increase efficiency Potential to reduce cash conversion cycle by 5 days Reduce overheads as % of revenue from 14% to 12.5% Post Acquisition Managing the Managers

45 Senior managers from Cadbury successfully integrated into Kraft

Former Cadbury executives have taken 1/3rd of Kraft’s top 50 positions across the company

Emerging markets – taking advantage of the talent

Staff retention and integration is always going to be a challenge

Workshops to encourage cooperation and knowledge transfer Questions?