DEALTALK-The work for Kraft starts after winning Cadbury

(For other Reuters Dealtalks, click [DEALTALK/])

* Cadbury shareholders seen taking deal

* After bitter fight, Kraft must make friends in Britain

* Cost savings seen including job cuts

By Brad Dorfman and David Jones

CHICAGO/LONDON, Jan 29 (BestGrowthStock) – Kraft Foods Inc (KFT.N: )
is expected to easily win support from Cadbury (CBRY.L: )
shareholders for its $18.73 billion (11.68 million pound)
takeover of the iconic British chocolatier.

But after an acrimonious four-month takeover battle in
which Kraft was painted as a slow-growing purveyor of plastic
cheese, winning the hearts and minds of Cadbury workers and its
UK consumers might be a tougher task.

All large takeovers have risks when it comes to integrating
the two companies, analysts said. But before Cadbury’s board
accepted a sweetened offer from Kraft on Jan. 19, Cadbury’s
management, unions and even one of the members of Cadbury’s
founding families fiercely battled against Kraft’s bid.

“Beyond melding disparate corporate cultures, Cadbury’s
public dismissal of Kraft’s business model and management
decisions in recent months increases the challenges of this
integration,” Morningstar analyst Erin Swanson said.

As late as five days before accepting Kraft’s offer,
Swanson noted, Cadbury Chairman Roger Carr was still “talking
about how Kraft hadn’t been good at integrating deals, hadn’t
been good at improving their own results over a several year
history — and now they are part of that business model.”

Even after the deal was announced, influential investor
Warren Buffett, whose Berkshire Hathaway (BRKa.N: ) is Kraft’s
largest shareholder, called the move a “bad deal,” putting more
pressure on Kraft Chief Executive Irene Rosenfeld to deliver
the cost-saving and revenue growth she has promised.

“Every acquisition has this issue built into it,” Morton
Pierce, chairman of law firm Dewey & LeBoeuf’s mergers and
acquisitions group, said. “It’s a big deal with a lot of zeros after the price tag, but every acquisition faces pressure to
prove the merits to shareholders.”


After acquiescing to Rosenfeld’s bid of 840 pence a share,
plus a 10-pence special dividend, Carr still lamented having to

“We have no weapons other than our shareholders’ belief in
the value of the company,” Carr was quoted by the Daily Mail as
saying. “It really hurts me that this is what’s happened to a
brilliant company doing all the right things.”

The same story said Cadbury CEO Todd Stitzer was “in tears”
when talking to Cadbury employees about the deal on Jan. 19.

Kraft shares have moved lower since the deal was announced,
and based on a Kraft price of $27.96 on Friday morning, the
deal was worth about 826.6 pence.

But that decline was not expected to prevent Kraft from
obtaining the majority of Cadbury shares it needs for the deal
go through, investors and analysts said.

“I don’t hear anyone objecting to the deal,” one top
Cadbury investor said.

Kraft is even expected to be close to or exceed the 90
percent level that forces any remaining Cadbury shareholder to
sell or else see their Cadbury shares become worthless.

Rosenfeld has promised $675 million of cost savings by the
end of the third year after the deal closes, on top of ongoing
cost-cutting already in place at Kraft and Cadbury.

A Kraft spokesman would not say what part of those cost
savings would come from job cuts, though analysts expect some
jobs to be lost when Kraft’s 97,000 employees are combined
with Cadbury’s 45,000.


Kraft could take a page from the merger history books about
missteps in hostile transactions. Hewlett-Packard’s (HPQ.N: )
acquisition of Compaq failed to prove wrong naysayers who felt
the combined company would be an ungainly business with
disparate brands that failed to mesh.

Yet, other hostile-turned-friendly deals quickly produced
results such as Comcast Corp’s (CMCSA.O: ) acquisition of AT&T
Broadband, which helped the cable giant more quickly compete in
the voice market.

A key for Kraft will be to really listen to Cadbury
employees ideas when it comes to integrating the companies,
Swanson said.

“They need to go in with an open mind of how to best
integrate that business into your operations, rather than going
in with a set plan,” she said.

Kraft has made many overseas acquisitions before, including
the 2007 acquisition of the Lu biscuit business from Danone
(DANO.PA: ) for $7.82 billion. In that deal, Kraft quickly
integrated operations in some markets, including China,
Indonesia, Malaysia and Russia, but that was an agreed-on
transaction from the start and Kraft had a head start in
looking at Lu’s operations.

A Kraft spokesman could not say how many jobs were cut in
that combination.

“Kraft is well versed in making acquisitions. There may be
a few local difficulties but it is not going to do anything to
damage the Cadbury brand,” said an industry source with
knowledge of the situation.

Stock Basics

(Additional reporting by Raji Menon and Jessica Hall; Editing
by Steve Orlofsky)

DEALTALK-The work for Kraft starts after winning Cadbury