kraft cadbury acquisition

kraft cadbury acquisition - Putting the theories to the...

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Putting the theories to the test Kraft’s acquisition attempt of Cadbury FINA 274 Lecture 4: Corporate payout policy 1
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The companies (at time of announcement) Kraft Foods Inc U.S. Food conglomerate Equity value = $40.8B Debt value = $20.7B Enterprise value = $61.5B Revenue/Net income = $40.3B / $2.4B Cadbury Plc U.K. Confectionary (candy-maker) Equity value = $12.8B (prior to deal annc) Debt value = $3.5B Enterprise value = $16.3B Revenue/Net income = $9.3B / $466M FINA 274 Lecture 4: Corporate payout policy 2
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Deal announcement September 7, 2009 $12.8B = Cadbury market value $40.9B = Kraft market value September 8, 2009 $16.8B = bid for Cadbury by Kraft ($4.0B premium) Proposed financing 1. $6.8B cash -- 300 pence/Cadbury share 2. $9.9B equity -- 0.26 shares Kraft for every Cadbury share 3. $8B in financing rumored (Kraft has $3.2B cash) Cadbury management rejects offer 1. $17.6B = Cadbury value at market close ($4.9B gain) 2. $38.5B = Kraft value at market close ($2.4B drop) FINA 274 Lecture 4: Corporate payout policy 3
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Market reaction – Cadbury stock price FINA 274 Lecture 4: Corporate payout policy 4 Rumor? Announcement Return = 38%
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Market reaction – Kraft stock price FINA 274 Lecture 4: Corporate payout policy 5 Announcement Return = -5%
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Combined market returns FINA 274 Lecture 4: Corporate payout policy 6 -3 -2 -1 0 1 2 3 4 5 6 0 2 4 6 8 10 12 Days relative to announcement Return to shareholders $38.5B = Kraft mkt val at close ($2.4B drop) $17.6B = Cadbury mkt val at close ($4.9B gain) Combined $2.5B (+8%)
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Other announcement news Kraft projects cost synergies Kraft projects $625M cost savings through cost synergies Compared to market prediction of $2.5B in total synergies Moody’s indicates that it may cut Kraft’s rating Baa2 to Baa3, one notch above junk In anticipation of increased leverage (increases cost of debt) Hershey and Nestle rumored as potential competing bidders Nestle CEO says not interested Hershey has no immediate comment, but stock rises 6% concurrent to the Kraft bid FINA 274 Lecture 4: Corporate payout policy 7
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This note was uploaded on 02/29/2012 for the course FINA 274 taught by Professor Williamhandorf during the Fall '11 term at GWU.

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kraft cadbury acquisition - Putting the theories to the...

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