US-based Kraft Foods?s $16.73 billion acquisition bid for the UK-based Cadbury Plc has an India angle to it. The world?s second largest food and beverage maker after Switzerland-based Nestle SA has a presence mainly in the US, where it is the largest player, followed by Europe, where it faces stiff competition from the likes of Nestle and the France-based Group Danone.
Nonetheless, both the US and Europe are markets that are not seeing huge growth. Developing markets such as India and China is where the action lies.
India, for the record, has been on the radar of Kraft for long. It forged an alliance with Dabur Foods in 2001 through a subsidiary (KJS India) of its parent Philip Morris, now called Altria, to distribute its popular powdered flavoured drink Tang in India. That deal however was terminated in 2003.
Since then, Kraft has been looking at ways and means to have a meaningful presence here. In 2007, for instance, following its bid for the global biscuit business of Group Danone, company officials had articulated their interest to forge an alliance/joint venture with interested players to roll out their offerings in the country. This was done because Kraft had left out the Indian and South American markets when bidding for Danone?s international biscuit portfolio. It had hoped that Danone would be able to offload its stake in Britannia to it provided the Wadias, the Indian partner in the venture, allowed the company to do so. That never happened. It then said it would go alone in its attempts to get its products especially biscuits into the country. That hasn?t fructified as well.
Kraft?s current bid for Cadbury, though spurned by the latter, will give the company the much needed access it is seeking into a market like India, where the unlisted subsidiary of the British chocolate and confectionary maker has been doing exceedingly well. It registered sales of Rs 1,588 crore and a net profit of Rs 166 crore for the calendar year 2008 ? a growth of 23% and 41% respectively over the previous year. Kraft is hoping that Cadbury?s investors will be able to convince the board to accept its offer which was rejected on grounds of being too low. It is said not to be considering a hostile takeover of the latter.
But Kraft?s overtures have hardly gone unnoticed among its rivals. Both The Hershey Company (popularly called Hershey?s), which is the largest chocolate-maker in the US, and Nestle, are said to be contemplating rival bids, in an attempt to ensure that Kraft doesn?t walk away with the deal easily. Hershey?s has already appointed JP Morgan to advise it on options it can look at as it prepares to make a counterbid.
The international food and beverage market, for the record, has been consolidating over the last few years, and the action around Cadbury, said to be a takeover target for long, is just another chapter in all this.
Both Hershey?s and Nestle incidentally have a presence in India, the former through a joint venture with the Godrej group and latter on its own.