Speculation about whether Hershey will outbid Kraft for Cadbury ended today as Cadbury accepted Kraft’s revised offer of approx. $19B (US). This dance had been going on for months as Hershey correctly took its time about the worthiness of an offer that would have changed its’ financial structure...for the worse.
This is a case of the biggest player in the US chocolate market (Hershey) trying to keep a larger, wealthier neighbor from significantly altering the landscape of the chocolate candy universe. Cadbury would have helped Hershey achieve a greater share of the market outside of the US and North America, where chocolate is consumed at a higher rate than here in the US.
From Hershey’s perspective....
Is a move to increase its share of the worldwide market a good idea? Yes.
Is there value in keeping Cadbury out of the hands of Kraft? Yes..but
Was it worth the financial burden to Hershey required to acquire Cadbury? No.
While acquisition as a means of increasing share can be a good idea, Cadbury was not the right target because of its price.
There are a number of cautionary tales of US multinational companies trying to achieve a significant increase in market share by hitting a grand-slam home run. More often than not, such moves have placed the acquiring companies under such a large amount of debt that even its core businesses/markets suffer.
This brings us back to Kraft. Kraft has achieved a large foothold in the European market through its acquisition of the Swiss company Jacobs Suchard in 1990, bringing ownership of brands such as Milka, Terry’s, and Toblerone. However, Kraft still lags Hershey in chocolate candy revenues in the US, although its other food operations make it a much larger company. Kraft’s acquisition of Cadbury will give it a bigger share of the US chocolate market.
What can or will Hershey do next to grow its position in the chocolate universe? More in my next blog.
Have a good day!
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