FINAL TRANSCRIPT KFT - Kraft Foods Announces Plans To Acquire Groupe Danone's Global Biscuit Business - Conference Call Event Date/Time: Jul. 03. 2007 / 8:00AM ET www.streetevents.com Contact Us © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Jul. 03. 2007 / 8:00AM, KFT - Kraft Foods Announces Plans To Acquire Groupe Danone's Global Biscuit Business - Conference Call CORPORATE PARTICIPANTS Chris Jakubik Kraft Foods - VP IR Irene Rosenfeld Kraft Foods - Chairman & CEO Jim Dollive Kraft Foods - CFO CONFERENCE CALL PARTICIPANTS Chris Growe AG Edwards - Analyst Eric Katzman Deutsche Bank - Analyst Alexia Howard Sanford Bernstein - Analyst Robert Moskow Credit Suisse - Analyst David Palmer UBS - Analyst Eric Serotta Merrill Lynch - Analyst Kenneth Zaslow BMO Capital Markets - Analyst Ken Goldman Bear Stearns - Analyst Pablo Zuanic JPMorgan - Analyst Steven Kron Goldman Sachs - Analyst Ann Gurkin Davenport - Analyst Scott Frost HSBC - Analyst Mark Cohen Merrill Lynch - Analyst Tom O©Neill Barclays - Analyst Eric Scher Sanford Bernstein - Analyst David Adelman Morgan Stanley - Analyst Andrew Lazar Lehman Brothers - Analyst www.streetevents.com Contact Us 1 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Jul. 03. 2007 / 8:00AM, KFT - Kraft Foods Announces Plans To Acquire Groupe Danone's Global Biscuit Business - Conference Call PRESENTATION Operator Good day and welcome to this Kraft Foods conference call to discuss the Company©s acquisition plans. At this time all lines have been placed in a listen-only mode. After the prepared remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Thank you. It is now my pleasure to turn the call over to Mr. Chris Jakubik, Vice President Investor Relations for Kraft. Please go ahead, sir. Chris Jakubik - Kraft Foods - VP IR Good morning and thanks for joining us. Joining me on the call today are Irene Rosenfeld, Chairman and Chief Executive Officer; Jim Dollive, our Chief Financial Officer; and David Brearton, our EVP for Strategy. During our planned remarks today, we will reference lines that are available on our website at www.kraft.com. Earlier today we issued a press release that is also available on our website. During this conference call we will be making forward-looking statements, and actual results may vary materially from the statements made. Please see the risk factors section of our Form 10-K for the year ended December 31, 2006, on file with the Securities and Exchange Commission for a discussion of the risk factors that could cause material variations from the forward-looking statements made during this call. We will also be discussing financial information that includes non-GAAP financial measures. Please refer to our website kraft.com under the Investors tab; click 2006 Annual Report for the most directly comparable GAAP financial measures. Before handing off to Irene, I©d like to point out that the subject of today©s conference call is strictly related to today©s announcement on our plans to acquire Groupe Danone©s global biscuit business. Other subjects, particularly as they relate to our second-quarter business results, will be addressed on our second-quarter conference call currently scheduled for the morning of August 1st. With that, I©ll turn it over to Irene. Irene Rosenfeld - Kraft Foods - Chairman & CEO Thanks, Chris, and good morning. It©s a pleasure to be here in Paris today to announce this exciting acquisition of Danone©s biscuit business. The announcement we made today will strengthen our prospects not just in France, but around the world. Before opening it to your questions, I want to spend a few minutes telling you why this proposed acquisition makes great sense for Kraft and will create long-term value for our shareholders. In February, I laid out our long-term growth targets. I said that those targets were predicated on organic growth. But I also said that we would continue to look for opportunities to accelerate our growth through acquisitions, and that we would only pursue acquisitions when we were convinced that they were strategically compelling, financially attractive, and enhancing to shareholder value. The acquisition of the global biscuit business of Groupe Danone meets all of those criteria. As laid out on slide 3, it is a financially attractive acquisition that promises to be immediately accretive to our earnings per share. It will build a strong global snacks business and strengthen our largest and fastest-growing sector. www.streetevents.com Contact Us 2 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Jul. 03. 2007 / 8:00AM, KFT - Kraft Foods Announces Plans To Acquire Groupe Danone's Global Biscuit Business - Conference Call It is a transformational step for our international business that increases our footprint in emerging markets and improves our margin profile in the EU. It will add competencies that will enhance our existing capabilities and, therefore, it will enhance long-term shareholder value. Let me speak to each of these in turn. Starting with the numbers on slide 4, the acquisition of Groupe Danone©s global biscuit business for $7.2 billion is 2.6 times our estimate of 2007 net revenue of $2.8 billion and 13.2 times our estimate of 2007 EBITDA of $540 million. As slide 5 shows, the multiples for this transaction are very much in line with transactions of similar size for strong brands in the food industry. Specifically on a multiple of EBITDA, this transaction would be 13.2 times versus an average of 14 times for other large branded food transactions. It is important to note that over 25% of the Danone biscuit business is in emerging markets. Moving to slide 6 on a forward-looking basis, we will be building off a healthy 16% EBIT margin and expect to generate cost synergies of approximately 7% of 2007 expected net revenue on an ongoing basis. This will result in the combination being immediately accretive to our earnings per share in the first full year of operation, and even before considering any of the revenue growth opportunities I©ll describe in a minute. As for the financing, the transaction will be financed entirely with debt. With the addition of $7 billion of debt together with the EBITDA from these businesses, our pro forma debt to EBITDA ratio based on our debt outstanding at the end of the first quarter would have increased from 1.8 to 2.7 times. Given our strong free cash flow, we expect to maintain our investment-grade rating. We will continue to have significant financial flexibility to pursue our growth plans, including the ability to execute our $5 billion share repurchase program. Turning to slide 7, the addition of Danone biscuits will increase the prominence of our global snacks business in three ways. It will increase the contribution of snacks, our fastest-growing sector, to our overall global revenues. It will create an unmatched portfolio of iconic biscuit brands around the world, and it will strengthen our global footprint due to the highly complementary geographic mix with our base business. As shown in slide 8, in 2006 our global snacks sector, which includes biscuits, salted snacks and chocolate confectionery, had revenue of $10 billion. It©s our largest sector, representing 29% of our total annual revenues. It©s also the fastest-growing part of our business with growth of over 5% in 2006. The addition of both Danone©s global biscuit business, together with our recently acquired Iberian biscuit business, will increase our global snacks sector to approximately $13 billion or 35% of Kraft©s global revenues. Second, this transaction will provide Kraft with an unmatched portfolio of iconic biscuit brands. We will bring market-leading brands like LU, TUC and Prince together with Nabisco icons like Oreo, Chips Ahoy! and Ritz. Third, this combination is highly complementary. As you can see in slide 10, Kraft is currently a market leader in North America. Danone Biscuits is a market leader in Western Europe, Central and Eastern Europe, and we are the number two and six players respectively in Asia-Pacific. Together we will be a formidable player with leading positions in every major region of the world, which is a terrific foundation from which to grow. This growing high-margin business will be transformational for our international operations. On a pro forma basis, our international presence increases from 33% to 38% of our global revenues. We believe this combination presents both businesses with an outstanding opportunity for incremental growth. As shown in slide 11, in Europe this means that biscuits will give us additional scale by becoming our third core growth category, in addition to our strong coffee and chocolate categories. www.streetevents.com Contact Us 3 © 2007 Thomson Financial. Republished with permission. No part of this publication may be reproduced or transmitted in any form or by any means without the prior written consent of Thomson Financial. FINAL TRANSCRIPT Jul. 03. 2007 / 8:00AM, KFT - Kraft Foods Announces Plans To Acquire Groupe Danone's Global Biscuit Business - Conference Call The acquisition will be margin-enhancing to our EU division, and it provides infrastructure to extend our Nabisco brands like Oreo, Chips Ahoy! and Ritz beyond Iberia. In developing markets this means that Danone biscuits will allow us to immediately capture profitable scale in key markets, including gaining entry into the business category in Eastern Europe, notably Russia, where Danone is the share leader.