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Commission sets conditions for Kraft buying Cadbury

By Jess Halliday , 07-Jan-2010
Last updated the 07-Jan-2010 at 13:17 GMT

The difference between British and continental European chocolate preferences means the acquisition of Cadbury by Kraft would not present competition problems, the European Commission has said, as long as Cadbury’s concerns in Poland and Romania were sold to a third party.

Kraft launched a hostile bid to by the UK chocolate firm in September, following the rejection of an offer of £10.2bn ($16.4bn) or 745 pence per share. The hostile bid is for the same dollar value, but currency shifts mean its value has since slipped.

The Commission’s clearance removes one potential barrier to the proposed deal becoming reality. However it is still far from certain that it will go ahead, as Kraft revealed yesterday that only 1.5 per cent of Cadbury shareholders support its current bid. It needs backing of at least 50 per cent in order to go ahead.

European preferences

Both Cadbury and Kraft are multinational companies, with activities in over 150 and over 60 countries respectively. But Cadbury is the market leader in chocolate confectionery in the UK and Ireland, markets where consumers prefer British-style chocolate over ‘-continental tastes and where Kraft has a low market share.

British chocolate often uses vegetable fat instead of all cocoa fat, and tends to be sweeter and milkier than continental chocolate. Cadbury’s Dairy Milk brand is said to be particularly British in its appeal.

Kraft’s major brands in Europe are Milka, Cote d’Or and Toblerone. Since these are more in line with continental rather than British tastes, they are not deemed to be in direct competition with Cadbury’s brands.

The only markets that do pose a problem are Poland and Romania, where both companies have a large market share and their brands compete closely, especially in chocolate tablets. Kraft has therefore said it would sell Cadbury’s Polish business, marketed under the Wedel brand, and Cadbury’s domestic chocolate business in Romania.

Competition commissioner Neelie Kroes said: “In view of the remedies proposed, I am satisfied that the proposed takeover would not adversely affect competition anywhere in Europe and that consumers would not be worse off.”

Where now?

Kraft now has until 19 January to raise its bid, after which Cadbury shareholders have until 2 February to accept. If under 50 per cent agree, Kraft will have to wait a year before making another move on Cadbury.

This week Kraft said it said it would raise the cash portion of the offer, but lower the share portion, after selling its pizza business to Nestle for $3.7bn.

Rival offers will be accepted until 23 January.

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