US food company Kraft Foods launched a hostile bid for Cadbury, the UK-listed chocolate maker. As became clear almost exactly two years later in August 2011, Cadbury was the final acquisition necessary to allow Kraft to be restructured and indeed split into two companies by the end of 2012: a grocery business worth approximately $16bn; and a $32bn global snacks business. Kraft needed Cadbury to provide scale for the snacks business, especially in emerging markets such as India. The challenge for Kraft was how to buy Cadbury when it was not for sale.

Kraft itself was the product of acquisitions that started in 1916 with the purchase of a Canadian cheese company. By the time of the offer for Cadbury, it was the world's second-largest food conglomerate, with seven brands that each generated annual revenues of more than $1bn. Cadbury, founded by John Cadbury in 1824 in Birmingham, England, had also grown through mergers and demergers. It too had recently embarked on a strategy that was just beginning to show results. Ownership of the company was 49 per cent from the US, despite its UK listing and headquarters. Only 5 per cent of its shares were owned by short-term traders at the time of the Kraft bid.

Not only was Cadbury not for sale, but it actively resisted the Kraft takeover. Sir Roger Carr, the chairman of Cadbury, was experienced in takeover defenses and immediately put together a strong defensive advisory team. Its first act was to brand the 745 pence-per-share offer "unattractive", saying that it "fundamentally undervalued the company". The team made clear that even if the company had to succumb to an unwanted takeover, almost any other confectionery company (Nestl, Ferrero and Hershey were all mentioned) would be preferred as the buyer.

In addition, Lord Mandelson, then the UK's business secretary, publicly declared that the government would oppose any buyer who failed to "respect" the historic confectioner. The response Cadbury's own defense documents stated that shareholders should reject Kraft's offer because the chocolate company would be "absorbed into Kraft's low growth conglomerate business model - an unappealing prospect that sharply contrasts with the Cadbury strategy of a pure play confectionery company".

Little did Cadbury's management know that Kraft's plan was to split in two to eliminate its conglomerate nature and become two more focused businesses, thereby creating more value for its shareholders. The result The Cadbury team determined that a majority of shareholders would sell at a price of roughly 830 pence a share. A deal was struck between the two chairmen on January 18 2010 at 840 pence per share plus a special 10 pence per share dividend. This was approved by 72 per cent of Cadbury shareholders two weeks later.

1. What is Mergers and Acquisition?
2. What are the classifications of take-over and what are the possible reasons (five) why Kraft Foods launched a hostile bid for Cadbury?
3. What was some of the defensive strategies Cadbury took to avoid Kraft Foods from taking over?
4. Explain five Pre-Bid Defense and four Post-Bid Defense which could have helped Cadbury.