Kraft split raises more doubts about value of Cadbury takeover

On hearing that Kraft intended to split it operation into two, the first image that came to my mind was that of the Grand Old Duke of York.

Hopefully (for the sake of shareholders if no one else) Kraft chief Irene Rosenfeld’s grasp of tactics is superior to that of the benighted generalissimo. But we cannot be sure at this stage and nor – judging by their confused reaction – are some of Kraft’s investors.

True, one of the most tiresome of these – corporate raider Nelson Peltz, who has been endlessly belabouring Rosenfeld for Kraft’s dead-in-the-water share price – thinks it’s a great idea to split the lumbering behemoth into a fast-track candy and snacks company centred on emerging markets (and by implication double digit growth) while leaving the dreary North American grocery business to slumber on as a “yield centre” with a no-hope share price.

According to his logic, Rosenfeld has been playing a long and crafty (sorry) strategic game, in which the $19bn Cadbury hostile takeover was only the first move. Rosenfeld needed Cadbury for its dominance in emerging markets, so she could reshape Kraft’s existing snack lines into a global growth business. Warren Buffett, another long-time Rosenfeld critic, seems to have adopted the same line, albeit in more muted language.

Having met Rosenfeld, I can attest that she indeed a very sharp cookie. But whether she has been that crafty I – and rather more importantly, many members of the investment community – have reason to question.

Undoubtedly she has been limbering up a dramatic piece of financial engineering for some time. But maybe that’s all it is: one last, opportunistic, throw of the corporate dice to get two of her most irksome and powerful critics off her back.

Here’s the flaw in the grand strategy theory. If Rosenfeld had the idea of capturing access to developing markets all along, how come she so successfully managed to jettison all the senior people who knew anything about exploiting them? I am of course talking about virtually the entire senior tier of Cadbury management, which formed a queue to the exit within months of the takeover in early 2010.

I am afraid Kraft lifer Tim Cofer – if that’s who ends up getting the top job at Kraft Snacks and Candy – simply won’t cut the mustard by comparison.

If Kraft, in buying Cadbury, was merely parlaying itself into the world’s emerging markets, it chose a peculiarly clumsy and perverse way to do it.

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