What is the business outlook for candy sales

Kraft Foods: Billions for British Chocolate

Kraft Foods wants to merge with Cadbury, the second largest candy manufacturer in the world, and thus move closer to Nestlé. The British are still fighting back.

Vienna (cim). Milka chocolate, Oreo cookies, Daim and Toblerone are not enough. Kraft Foods would love to have Cadbury chocolate in its range and is vying for the British. However, these consider themselves to be more valuable and have so far thwarted the offer of 11.7 billion euros as being too low.

After all, Cadbury was the largest candy manufacturer in the world until 2007. But then US competitor Mars took over the chewing gum manufacturer Wrigleys and overtook Cadbury. Now, after its status as world market leader, independence could soon be over, because Kraft Foods will presumably increase its range. Industry experts also consider a counter offer from competitor Nestlé possible.

“It's about growth,” says Kraft Foods boss Irene Rosenfeld, explaining the courtship for the British. It works that way, but with Cadbury, Kraft would move closer to number one in the global food market, Nestlé. Together, Kraft and Cadbury would have annual sales of $ 50 billion. Nestlé, however, has twice as much turnover within a year.

If the takeover succeeds, Kraft Foods would at least be a leader in China, India, Brazil, Mexico and Russia.


Sweet prospects

However, the British stated that they also had "excellent business prospects" on their own. The traditional company with 46,000 employees has recently grown strongly despite the economic crisis. Business has been good in Great Britain as well as in India and South Africa in particular. The company, which was called Cadbury Schweppes before the beverage division was sold, tripled its profit in the first half of 2009 to EUR 358 million. During the period, sales grew by 13 percent to 3.2 billion euros.

"We believe that it could be harder for Cadbury to develop in the future," the US giant advertises. "Mainly because in our industry the size of a company is becoming more and more important."

Kraft Foods also recently reported good business. In the second quarter alone, profit grew by eleven percent to almost 577 million euros, while sales fell by 5.9 percent to seven billion euros.

With the takeover, the management of Kraft Foods wants to accelerate growth. Cadbury's products would also complement those of Kraft Foods. "The transaction would create a strong supplier of snacks, confectionery and ready meals with an exceptional portfolio of iconic brands," it says. While Kraft Foods has a strong presence in the Central European market with its Milka brand, among others, Cadbury holds its own with “Dairy Milk” chocolate bars or “Maynards” wine gums, especially in the Anglo-Saxon region.


Stock market expects more money

With the current offer from Kraft, Cadbury shareholders would pay a premium of a good 30 percent on the Cadbury closing price last Friday. In view of the price jumps of up to more than 40 percent after the offer became known, one apparently expects on the stock exchanges that an even better offer will follow.

Kraft Foods' plans sparked the takeover fantasies of the entire industry: Nestlé, Unilever and Danone have risen, as have shares in chocolate maker Lindt.

Nestlé is still keeping a low profile when it comes to British chocolate. "We are always open to good opportunities," said Nestlé boss Paul Bulcke. However, no major takeovers are planned for 2009 and 2010.

A sole takeover of Cadbury could also be difficult under antitrust law, as both companies are strong in the UK chocolate market. Now there is speculation that the Swiss could team up with another corporation - such as the US chocolate manufacturer Hershey - to take over Cadbury and then split it up.


Medium-sized chocolate

According to industry experts, takeover opportunities in the confectionery market are rare. Only about ten percent of the international candy market is in the hands of major international corporations. Specialists such as Haribo are still medium-sized companies that generate good profits but are not for sale.

("Die Presse", print edition, 09/08/2009)