One example of a firm that pursues acquisitions aggressively is Kraft, a trait that can be traced through the years. Kraft Foods bought UK based Cadbury PLC for close to $20 billion in a hostile takeover (in 2010). Unlike the more diversified food products company Kraft, Cadbury was focused solely on candy and gum. Hailing to 1824, Cadbury established itself in markets across the globe, in concert with the British Empire.

Kraft was attracted to Cadbury due to its strong position in fast growing countries such as India, Egypt, and Thailand and in many Latin American markets. Cadbury held 70 percent of the market share for chocolate in India, with more than 1 billion people. Children there specifically ask for Cadbury chocolate instead of just plain chocolate. It is difficult for outsiders like Kraft to break into emerging economies because earlier entrants have developed and perfected their distribution systems to meet the needs of millions of small, independent vendors. To secure a strong strategic position in these fast-growing emerging markets, therefore, Kraft felt that horizontal integration with Cadbury was critical. Kraft continues to face formidable competitors in global markets, including Nestl and Mars, both of which are especially strong in China.

We can see Krafts approach even through its divisions. To focus its different strategic business units more effectively and to reduce costs, Kraft Foods restructured in 2012. It separated its North American grocery food business from its global snack food and candy business (including Oreos and Cadbury chocolate), which is now Mondelez International. In 2015, Kraft Foods merged with Heinz (owned by Warren Buffetts Berkshire Hathaway and 3G Capital, a Brazilian hedge fund) in a $37 billion merger, creating the fifth largest food company in the world, behind Nestl, Mondelez, PepsiCo, and Unilever.

In the U.S. market, the Cadbury acquisition allows Mondelez greater access to convenience stores, gives it a new distribution channel, and opens a market for it that is growing fast and tends to have high profit margins. Mondelez, which does not directly compete in the United States, licenses its famous Oreo cookie to its subsidiary Nabisco. Moreover, Mondelez licenses the sale of Cadbury chocolate to The Hershey Co., the largest U.S. chocolate manufacturer.

Hersheys main strategic focus is squarely on its home market. With the U.S. population growing slowly and becoming more health conscious, however, Hershey decided in 2013 to enter the Chinese market, the worlds fastest growing candy market. Since its founding in 1894, Hersheys entry into China is the companys first product launch outside the United States. Hersheys sales growth in China, however, has been disappointing. Combined with little or no growth in the United States, Hershey had to cut jobs in the recent past.

Inheriting a penchant for hostile takeovers from its parent Kraft Foods, Mondelez saw an opportunity. Spotting a weakness in the Hershey Co., Mondelez made an unsolicited takeover offer to buy the U.S. chocolate maker for some $23 billion in 2016. The goal was to create the worlds largest candy maker. But Hersheys board rebuffed the Mondelez takeover bid unanimously. The Hershey Co. is owned by the Hershey Trust, which was established by Milton Hershey some 125 years ago. The trusts main beneficiary is a school for underprivileged children in Hershey, Pennsylvania, the hometown of the namesake company. The dominant trait of a preference for hostile take overs inherited from its progenitor also became apparent in 2017 when Kraft Heinz made a whopping $143 hostile takeover bid for Unilever, a British Dutch consumer goods company. The intent was to merge the worlds two largest packaged food companies. Unilever then CEO Paul Polman, however, made it clear that the multinational with a strong focus on corporate social responsibility was not interested in pursuing any merger talks with Kraft Heinz.

Once the aggressive suitor of rivals through unsolicited takeover bids, by 2019, Kraft Heinz itself had fallen on hard times. Critics claim that Kraft Heinzs focus on relentless cost cutting may have prevented the company from recognizing and seizing changing customer preferences. In particular, they point the finger at zero based budgeting as a root cause of Kraft Heinzs problems. In zero based budgeting, each year managers start off with a clean slate and have to justify all projected expenses and financial results. Providing the executive leadership team of Kraft Heinz, 3G Capital pursues zero based budgeting with religious fervor. The problem, critics assert, is that with this type of cost control, new innovative projects often dont cross the required financial hurdles and are shut down prematurely. Using a real options approach, that is investing to gain more information about the future potential of projects as time unfolds, is used by many Kraft Heinz competitors such as Unilever, PepsiCo, and Nestl, which have fared significantly better in the recent past.

As a consequence of these troubles, Kraft Heinz market cap has fallen from a high of $141 billion in 2016 to a mere $31 billion in 2019, losing $110 billion (or almost 80 percent) in its valuation. In recent years, Kraft Heinz has experienced a sustained competitive disadvantage vis--vis its competitors. To accomplish a turnaround of the once mighty Kraft Heinz, Miguel Patricio was appointed as new CEO; he comes from AB InBev, the worlds largest beer brewer, which is also owned in part by 3G Capital.

Questions

Kraft is shown to be prone to using hostile takeovers. These acquisitions are completed over the objections of the acquired firm. As noted in the text, mergers and acquisitions sometimes have difficulty creating enhanced competitive advantage.

What are your thoughts on Krafts Strategy?

What additional burdens must a hostile takeover overcome?

How can positive advantages be achieved?

How is a hostile takeover more difficult than a merger or cooperative acquisition?