Kraft Continues Portfolio Shuffle

Kraft Foods bid for Cadbury makes a lot of strategic sense and will allow them to increase their growth in international markets.The key to the deal is utilizing Cadbury's extensive distribution and sales network to further drive growth of existing Kraft products.Faced with the likelihood of having to increase the all cash portion of the bid Kraft will be looking at additional brands to divest and help pay for the acquisition.

Kraft Foods recent bid for Cadbury continues their efforts to reshape their product portfolio.The Cadbury bid is recognition by Kraft that they need to improve their sales growth in international markets to drive overall top line growth across their total portfolio.Sales growth in international markets is especially appealing because food sales are expected to grow at twice the rate in international markets vs. the US.They also have much lower market shares allowing for stronger growth potential.

 

Cadbury provides them not only a strong brand in the chocolate segment but also helps them strengthen their distribution and trade network across Europe and emerging markets.This is particularly important as they look to increase growth of their existing products in the chocolate,coffee,biscuits and cream cheese categories.

 

Cadbury's rejection of the Kraft bid appears to be primarily based on valuation.Cadbury's letter to Irene Rosenfeld was well positioned to extract a higher bid and to increase the cash portion of the offer.In order to meet these guidelines Kraft will probably need to continue their efforts to divest non strategic US based brands.Oscar Mayer and Maxwell House have been mentioned but other smaller brands are also a strong possibility.Kraft's investment in Ralcorp via the Post cereal divestiture also provides potential for further cash , contingent of course on the terms of sale to Ralcorp.

 

Look for more reshuffling of Kraft brands and products in the near future.

Rick Shea consults with leading institutions through GLG