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Kraft to split its snacks and grocery businesses

August 5th, 2011
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Eighteen months after buying Cadbury- the European candy maker-, Kraft Foods has announced that it is to split into two companies by separating its North American grocery business from its global snacks enterprise.

“Eighteen months into the Cadbury integration, the company has, in fact, built a global snacking platform and a North American grocery business that now differ in their future strategic priorities, growth profiles and operational focus,” says the company.

The company goes on to say that the snacks business would focus on ‘fast-growing developing markets and in instant consumption channels’, while the North American business would continue to develop its brands distributed through more traditional grocers.

“The global snacks business has tremendous opportunities for growth as consumer demand for snacks increases around the world,” the chief executive Officer, Ms. Rosenfeld said. “The North American grocery business has a remarkable set of iconic brands, industry-leading margins and the clear ability to generate significant cash flow.”

The new snacks company will combine units in Europe and the developing markets as well as the North American snacks and confectionery businesses. Annual revenue for the group — which will include brands like Oreo, Cadbury, Milka, Tang and Trident — is expected to be $32 billion, with three-quarters coming from international operations and 42 percent from emerging markets.

The North American spinoff should have about $16 billion in annual revenue from Kraft’s cheese, beverage and meals businesses. Its portfolio will include products like Maxwell House coffee, Philadelphia cream cheese and Jell-O.

“Detailed review by the board and management has shown that these two businesses would now benefit from being run independently of each other,” adds Kraft.

The announcement comes only days after Kraft was forced to pay £400 million towards Cadbury’s deficit-struck pension scheme. Shortly after buying Cadbury, the US firm was criticised for trying to encourage workers to leave the defined-benefit plan, after discovering that a quirk in its rules makes it difficult to close unilaterally.

The separation is expected to take at least 12 months, and be completed before the end of next year.

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Kraft sues Indian biscuit maker for ‘trademark violation’

January 7th, 2011
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Kraft Foods is suing Indian biscuit maker Britannia Industries for trademark violation related to one of its products that the US group says is a copy of its popular Oreo cookies

A petition filed by Kraft in the Delhi High Court alleges that the Bangalore based manufacturer’s Treat-O biscuit copied its well known cream-filled sandwich biscuits using recognised characteristics of its Oreo cookies such as their florets and inner rings.

The US confectionery and food giant also accuses Britannia of duplicating the Oreo brand name with the O in its title and the Illinois-headquartered firm has requested the High Court to restrain the Indian firm from manufacturing, selling, marketing or advertising any product with any distinctive feature of Oreo cookies.

Kraft, in its petition, has further submitted that `Oreo’ was registered in India in 1991 and has been imported into and sold in the country since then. It is suing the Indian biscuit producer for damages.

Britannia Industries must file reply by 25 January, the next date of hearing on the case.

Brand power

In fiercely competitive times, the brand value – the power of the brand in the mind of the consumer – can bring much-needed leverage in the marketplace, as well as propping up shareholder value.

But the onus is on the food and drink manufacturer to show that the public perceive that the shape of its bottle or its food functions as a ‘badge of origin’ for the brand in order to satisfy valid trademark requirements.

Trademark tangles

There have been notable disputes over shape violation in recent years involving food companies. In July 2009, Mars lost its battle in the European Court of First Instance to regain trademark rights for the shape of its Bounty Bar.

However, Court ruled that the bar is “devoid of any distinctive character” that could justify the trademark.

It said that “an elongated shape is almost intrinsic to a chocolate bar and does not therefore significantly depart from the norm and customs of the relevant sector.”

Last September, General Mills lost its battle in the Israeli courts against two local manufacturers over allegations that they were copying the company’s well known cornucopia shaped corn snack – which is marketed under the Apropo brand in Israel.

The courts there ruled that was no likelihood of confusion in the public’s mind regarding the competing brands due to the distinctive packaging of the defendants’ products.

Uniliever was also unsuccessful in its attempt to safeguard the wavy shape of its Viennetta ice-cream through trademark application, even though it submitted survey evidence to establish public perception of its multi-layered gateau’s shape as being unique.

In 2008, Cadbury was also the loser in an Australian court case over its claim to the copyright of the colour purple.

Cadbury took action to try to stop local rival Darrell Lea using purple for its packaging and advertising.

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Kraft signs new cocoa deal

September 10th, 2010
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US food giant Kraft Foods has signed a new deal with cocoa supplier and manufacturer Barry Callebaut.

It is a long-term agreement which will see the company supplying Kraft with cocoa products and other chocolate ingredients.

Some of the Cadbury liquid chocolate deliveries will also be part of the deal.

This agreement will more than double Barry Callebaut’s existing business with the food giant.

Due to the increased business, the company has said it plans to invest around $65 million (£42 million) over the next two years to boost its production capacity.

The financial terms of the deal were not disclosed by Kraft when it announced an agreement had been reached.

After the announcement, shares in Barry Callebaut surged.

A spokesperson for the company told Market Watch: “It’s a significant deal and will put Kraft among our largest customers.”

This week, the former marketing director at Cadbury, who quit after not agreeing new terms with Kraft following the takeover of the brand earlier this year, Phil Rumbol, announced he would be starting up a new marketing agency.

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Kraft v.p. gives sodium-reduction strategies

July 27th, 2010
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A product’s sales volume will affect how much emphasis Kraft Foods Inc. places on reducing the product’s sodium content, said Richard Black, vice-president of global nutrition. For example, reducing sodium content by 15 mg in a product with 100 million lbs in annual sales would have more overall impact than by reducing sodium content by 200 mg in a product with 3 million lbs in annual sales.

Black spoke 19 July in a session titled “Sodium in Foods, Striking the Right Balance” at IFT 10, the Institute of Food Technologists’ annual meeting and food exposition in Chicago. The session drew about 350 people with some sitting against the wall because all the chairs were taken.

Kraft Foods, Northfield, Illinois, USA, has a goal over the next two years of reducing sodium content by an average of 10% across its entire portfolio. Because of the company’s emphasis on sales volume, some foods will experience a greater reduction than 10%.

Kraft Foods will seek cost reduction in other areas to balance out increasing ingredient costs associated with sodium reduction, Black said. Salt may cost 9c to 12c a lb while ingredients that replace salt are higher. A Kraft salt replacer costs about US$1.20 per lb, Black said.

“Now you see the challenge we have,” he said.

Black gave hypothetical examples about the potential costs of reducing sodium in Kraft products. Using figures that were for illustrative purposes and not based on actual data, Black said a 25% sodium reduction in Ritz crackers hypothetically may require additional ingredient costs of about US$1 million per year. Additional charges of about $300,000 per year hypothetically could come in such areas as product development, warehouse and labeling.

Since Kraft has about 3,500 products, sodium-reduction costs hypothetically could exceed $1 billion per year, Black said.

“This is not an excuse,” he said. “We have to be able to solve this problem. We will be held accountable. We should be held accountable.”

Sodium reduction will present different problems for different products. If sodium content is reduced by 50% in ranch dressing, consumers may not detect it as less salty, Black said.

“But it tastes like Miracle Whip,” he said. “It’s not always a salty thing you’re doing.”

Formulators must consider texture and yield when reducing sodium content.

“If you reduce sodium in a hot dog too far, it literally turns to mush,” Black said. “There’s a level below which you cannot go and still have a hot dog. The same is true for cheese.”

Sodium also is in alkalizing agents in cocoa, he said. Whenever Kraft adds cocoa to its cookies, the company needs to work with its cocoa suppliers to reduce sodium content in cocoa ahead of time, or before Kraft starts working with it.

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Big players in final bids for Wedel

June 18th, 2010
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Analysts have placed Nestlé as the frontrunner to secure Polish confectioner E. Wedel from Kraft with final bids due by the third week in June.

Hershey and Nestlé are among the final six bidders for Wedel, along with private equity firms Bridgepoint, Advent International and two unnamed companies.

Wedel is said to be valued at €2-300 million. The 150-year-old confectioner is Poland’s oldest chocolate brand and became part of Cadbury in 1999.

The Polish company, as well as Romanian assets, is being sold off by Kraft as part of the takeover agreement of Cadbury. The disposals were imposed by the EU as a condition for the takeover deal.

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Kraft CEO unperturbed by Buffett stake cut

May 28th, 2010
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cadbury-2The head of Kraft Foods said she was not concerned by top investor Warren Buffett’s decision to cut his stake in the U.S. food group after criticizing her acquisition of British chocolatier Cadbury.

The integration of Cadbury is on track and benefits from the $18.4 billion deal will become clear to shareholders, Chairman and Chief Executive Irene Rosenfeld told Reuters on Friday.

“I will say that for Mr Buffett as well as for all our shareholders, in the coming months we will continue to deliver against the targets we have laid for ourselves. These results will speak for themselves,” Rosenfeld said.

With a market value of $53 billion, Kraft, the maker of Oreo cookies and Philadelphia cream cheese, is the largest North American food maker and the world’s second biggest behind Nestle.

Kraft shares currently trade at about 12.5 times 2011 estimated earnings, below rivals such as Nestle’s 14.8 times, Hershey’s 17.4 times and General Mills’ 14.3 times.

Awaiting buffett’s congratulatory card

Buffett has said in the past that when a company made an acquisition he bought two greeting cards, a congratulatory card and a condolence card and waited five years to decide which card to send, Rosenfeld said.

“What I have said to him is that I am quite confident he will be sending me a congratulatory card and it will be in far less than five years,” she added.

Kraft bought Cadbury earlier this year after a hostile takeover battle that tested Rosenfeld’s leadership and created the world’s largest confectionery group.

The deal gives Kraft additional confectionery businesses which are growing faster than its core food and beverage brands like Maxwell House coffee and access to emerging markets like India.

Buffett’s Berkshire Hathaway previously owned 9.4 percent of Kraft, making it the largest shareholder. But since the beginning of the year Berkshire has sold down its stake to 106.73 million shares, giving it 6.1 percent of the shares in issue as at the end of April, according to regulatory filings and Reuters data.

Buffett said Rosenfeld had paid too much for Cadbury and called the recent sale of Kraft’s frozen pizza business to Nestle “particularly dumb.”

But Kraft has set a goal for at least $675 million of annual cost synergies from the deal by the end of the third year.

“We are well on our way to deliver those,” she said, adding the integration was “progressing extremely well” .

Meanwhile the sale of Cadbury’s Polish and Romanian businesses, which Kraft must sell for competition reasons, is likely to happen in the next six months, and there are a number of interested buyers, she added.

Earlier this month Kraft posted higher than expected first-quarter revenues, helped by the Cadbury acquisition and growth in emerging countries, but forecast 2010 earnings per share that were below analyst estimates, raising concerns over how smoothly Cadbury can be integrated.

Jobs

The Cadbury deal also means that Kraft’s global workforce of 98,000 employees will join Cadbury’s 45,000.

Rosenfeld acknowledged there would be redundancies but said the group would not commit to a global figure as decisions would be made country by country and left to the local managers.

In Britain Kraft’s handling of the takeover drew criticism after it said in February it would shut Cadbury’s Somerdale confectionery plant in western England with the loss of 400 jobs.

This decision came despite Kraft suggesting during the takeover battle that it might be able to keep the factory open. Kraft has committed not to make any further manufacturing redundancies for the next two years in Britain.

Happy with current portfolio

In March, Kraft completed the $3.7 billion sale of its pizza business to Nestle to help fund the Cadbury deal.

Asked if Kraft could exit other businesses, Rosenfeld said: “I feel very good about the portfolio today. I am quite confident the targets we have laid out for growth both for the top and bottom-line we can deliver with the portfolio as we know it today.”

She said she would continue to look at opportunities over time to ensure all assets contributed to the group’s growth.

Apart from integrating Cadbury, Kraft, like other food companies, has to grapple with soft consumer spending, rising commodity prices and volatile currencies.

It expects commodity costs to rise by between 1 and 2 percent this year but Rosenfeld said these costs should be manageable within the group’s overall plan.

Kraft, which now makes 51 percent of revenue outside North America, was also closely watching the currency situation in Europe, notably the weak euro.

Asked about consumer trends for the second quarter, she said: “In the second quarter we will see many of the same trends as we saw in the first around the world.”

Rosenfeld was in Paris for the start of building an biscuit research and development center in Saclay, Paris, where Kraft is investing 15 million euros. Kraft spends over 1 percent of its global turnover on R&D.

Kraft, which bought the biscuit business of Danone in 2007, is the global leader in the $60 billion biscuit market.

Source: Reuters

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Cadbury: likely to have a positive future under Kraft

January 29th, 2010
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cadburyBritish confectioner Cadbury is likely to have a positive future under Kraft, according to a UK member of parliament.

In comments made to the Birmingham Post, Ken Clarke, the shadow business secretary, said that Kraft’s eagerness to secure a deal with the company meant the firm was “optimistic about the future of Cadbury”.

Kraft sold its American frozen pizza business to Nestle earlier in the month in order to improve its offer for Cadbury, kraft_llogowhich stands at over £11 billion. The current offer is thought to be worth around 850p per share.

Mr Clarke told the newspaper that if the deal goes through the UK government will then focus on saving jobs and the Cadbury factory at Bourneville, near Birmingham.

He said: “There comes a point when there is no point in reminiscing about the Quaker foundations of Cadbury, nor even getting too worked up about whether they should have been sold or not.”

One major shareholder of Cadbury Legal and General has already criticised the decision of Cadbury’s management to recommend the Kraft offer stating that it “fails to fully reflect the long-term value of the company.”

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Details of Cadbury deal emerge

January 23rd, 2010
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cadburyDetails of the deal between British confectioner Cadbury and Kraft have emerged which show the US food manufacturer paid the equivalent of 850p per share.

It is thought that the deal was finally clinched in the early hours of the morning on Wednesday January 20th, with Cadbury accepting an offer worth £11.9 billion from Kraft.

kraft_llogoThe Times reports that Cadbury’s chairman Roger Carr, turned down offers of 830p and 840p per share before a deal was finally agreed.

However, the move has already been criticised by Legal and General, Cadbury’s largest UK shareholder.

Mark Burgess, the head of active equities at Legal and General Investment Management, said: “We are disappointed management have recommended the offer for this iconic and unique British company.”

He added that the firm was “grateful” for the way it was consulted with but “the final offer fails to fully reflect the long-term value of the company”.

The board of Cadbury had been urging shareholders to reject Kraft’s previous offers, branding them “derisory” and “inadequate”.

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Kraft, Cadbury’s defence is ‘underwhelming’

January 15th, 2010
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cadburyActivity is heating up around the British confectionary brand Cadbury after the publication of a defence document on January 12th stating that Kraft’s takeover offer was “even more unattractive”.

Reports have emerged through the Reuters news agency that sources close to the Italian company Ferrero and the US food manufacturer Hershey have ruled out either company putting in a rival bid.

This leaves Kraft’s bid, which was updated last week, the only offer on Cadbury’s table. The board of Cadbury responded to the offer when it published its end of year results stating that it was “even more unattractive” than when it was originally made and urging shareholders to reject the bid.

kraftKraft has hit back at the statements calling Cadbury’s defence “underwhelming”.

It said: “They have said very little that is new and have ducked the issue of their profitability in 2010. We continue to believe that the certainty and upside potential provided by our offer remains the best option for Cadbury’s shareholders.”

Bloomberg has also reported that Cadbury boss Todd Stitzer believes it is important to the brands future to remain whole, rather than being broken up by an acquisition, if it wants to continue to compete in the global market place.

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Analyzed Hershey and Ferrero alliance to create offer with Cadbury

December 7th, 2009
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The British press hopes that the new is confirmed, while the market awaits the reaction of Kraft.

The American firm Hershey and the Italian Ferrero studied together to jointly bid for Cadbury, as the British press.

The alliance of the two companies of multinational dimension is presented in the form of an only viable alternative to the public offer of hostile acquisition (tender offer) formulated the past October by Kraft and which evaluated Cadbury in 11 thousand million EURO. This quantity was described as “ridiculous” by the British chocolate signature.

cadburyLike it was commented on a close source of Cadbury to the newspaper The Guardian, the signature did not receive for the moment notifies on this alliance supposed between the two giants although the British press indeed awaits it. The experts of the market await reaction of Kraft on a possible improvement of their offer by Cadbury.

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