Cadbury is arguably the producer of the best Easter eggs and also one of the best known adverts – who can forget the guerrilla playing the drums! If you think there is no substitute for Cadbury chocolate, then you’ll find this story especially interesting.
In early September, Kraft Foods made a £10.2 billion bid for the maker of Dairy Milk. This was duly rejected by Cadbury, whose Chairman said that the offer ‘fundamentally undervalued’ the business. This initial bid, although rejected, has sparked interest in the corporate world and Cadbury shareholders have seen their shares rise in value by almost 40%, closing at 775.5p on Friday 11th September.
Following this bid, other potential buyers have entered the picture, including Nestlé and Hershey’s. There is also the likelihood that Kraft Foods will make a higher bid, financed through a bridging loan. Despite this interest, Cadbury still wants to remain independent, hoping that its investors will be buoyed by the company’s rising profits in recent months.
Take a look at the following articles that consider these possible take-overs of Cadbury and how the corporate world has been, and will continue to be, affected.
Cadbury snubs £10.2bn Kraft move BBC News (7/0/09)
Hershey’s and Nestlé in running to buy Cadbury Telegraph (10/9/09)
Kraft races to prepare new Cadbury bid Guardian (9/9/09)
Return of the Deal? BBC News (7/9/09)
Hershey considers Cadbury counterbid Times Online (9/9/09)
Cadbury spurns ‘low growth’ Kraft BBC News (13/9/09)
Long Cadbury shares? Cash out! Khaleej Times Online (United Arab Emirates) (14/9/09)
Hedge fund Eton Park stakes £180m on Cadbury bid Telegraph (10/9/09)
Cadbury vision is to stay single Financial Times (11/9/09)
Questions
- In the 13th September BBC News article, an extract from a letter to the Kraft Chief Executive from the Chairman of Cadbury stated that under Kraft’s offer “Cadbury would be absorbed into Kraft’s low growth, conglomerate business model, an unappealing prospect.” What does he mean by a ‘conglomerate business model?’
- Eton Park has bought £180 million worth of shares. In what ways do you think this will affect the future of Cadbury? Is Cadbury more or less likely to sell now?
- How would you explain the rise in Cadbury’s share price when it looked as though the company might be taken over?
- Cadbury’s Chief Executive hopes that investors will continue to support the company given the positive profit margin growth. What does this actually mean?
- If the take-over were to go ahead, what do you think would be the impact on the (a) the Cadbury factory in Birmingham; (b) Cadbury’s workers; (c) Cadbury’s shareholders; and (d) the price of Cadbury chocolate?
The world experienced a large increase in merger activity from 2003 to 2007. The merger boom came to an end, however, in 2007/8 with the credit crunch and the ensuing recession. For example, the value of acqusitions of UK companies by overseas companies fell from £82.1 billion in 2007 to £52.6 billion in 2008, while the value of acquisitions of overseas companies by UK companies fell from £57.8 billion in 2007 to £29.7 billion in 2008 (see Mergers & Acquisitions data (National Statistics)). The decline continued in the first part of 2009.
Recent evidence, however, suggests that the beginnings of recovery in the world economy, a greater availability of credit and a substatial rise in share prices since March (see for example the FTSE 100 and Dow Jones indices) are leading to a new wave of mergers. Recent weeks have seen, amongst others, the takeover of Marvel Entertainment by Disney (see Disney is ‘Marvel’lous), the proposed merger of T-Mobile and Orange, and Kraft’s bid for Cadbury (see Cadbury: Chocolate All Change). So what has stimulated this new merger wave? How do mergers relate to the business cycle and to the stock market? Should they be welcomed? The following articles look at some recent mergers and at the issues they raise.
The return of the deal The Economist (10/9/09)
The revival of M&A is better than a poke in the eye Guardian (8/9/09)
Hovering Kraft The Economist (7/9/09)
Orange and T-Mobile to create UK’s largest mobile phone company Guardian (8/9/09)
Watchdog urged to investigate T-Mobile and Orange merger Guardian (8/9/09)
Questions
- Why has there been a recent rise in M&A activity? Discuss whether the revival in activity is likely to continue.
- Discuss whether an increase in M&A activity is ‘better than a poke in the eye’?
- To what extent will mobile phone users in the UK benefit or lose from a merger between Orange and T-Mobile?
- Will Cadbury’s consumers and workers benefit from a takeover by Kraft?
On the eve of the September 5/6 G20 meeting of Finance Ministers in London, the OECD published an interim forecast of the macroeconomic and financial performance of the G7 economies. According to the OECD, “Recovery from the global recession is likely to arrive earlier than had been expected a few months ago but the pace of activity will remain weak well into next year.” So is it time to start reversing the various fiscal and monetary stimuli adopted around the world? Or should governments and central banks continue to stimulate aggregate demand in order to maintain the fragile recovery? The following news releases, speeches and articles look at answers given to these questions by various countries and international institutions.
Recovery arriving quicker than expected but activity will remain weak, says OECD OECD News release (3/9/09)
What is the economic outlook for OECD countries? An interim assessment OECD Economic Outlook, Interim Assessment (3/9/09)
IMF Managing Director Dominique Strauss-Kahn sees Renewed Stability but remains cautious about Global Economic Recovery, notes need for Continued Policy Actions IMF press release (4/9/09)
Beyond the Crisis: Sustainable Growth and a Stable International Monetary System Speech by Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (4/9/09)
Brown urges further G20 spending (video) Gordon Brown on BBC News (5/9/09)
America’s Timothy Geithner says it’s ‘too early’ to withdraw economic stimulus Telegraph (3/9/09)
Finance chiefs warn against early end to state support for eurozone economies Guardian (3/9/09)
Keep spending – Darling warns G20 against complacency Independent (3/9/09)
Brown’s agenda deserves a hearing Financial Times (1/9/09)
Tories join Germany and France in call for exit strategy from G20 bailout Times Online (3/9/09)
UK recession: Why are we lagging our neighbours? Telegraph (3/9/09)
Reflections after the conference:
After the shock, challenges remain BBC News (7/9/09)
The G20 has saved us, but it’s failing to rein in those who caused the crisis Observer (6/9/09)
The world is as one on not endangering recovery Times Online (t/9/09)
Questions
- Why is the pace of recovery in the G7 countries likely to be modest for some time?
- Why have unemployment rates risen much more rapidly in some countries than in others (see page 19 of the OECD report)?
- Referring to the OECD report, how would you summarise changes in the global financial situation over the past few months?
- Assess the arguments put forward by France and Germany for reining in their expansionary fiscal and monetary policies.
- Why is the UK economy, according to the OECD, likely to be the last of the G7 countries to pull out of recession?
On 30 August, Japan’s opposition party, the Democratic Party of Japan (DPJ), won a landslide victory in the Japanese election. Although there are signs that the Japanese economy is beginning to pull out of recession (see Green shoots as autumn approaches), deep economic problems remain. Unemployment is at record highs; it has the highest national debt as a proportion of GDP of any of the G8 countries (see OECD Economic Outlook Statistical Annex Tables; consumer spending remains subdued; deflation seems entrenched; exports have slumped; bureaucracy is deeply embedded in government; and it has a rapidly ageing population.
So what is expected of the new government and what can it do? The following articles address these questions.
Japan’s Hatoyama sweeps to power (video) BBC News (31/8/09)
New Japanese government seeks a strategy for growth The Nation (Thailand) (1/9/09)
Japan’s new leader faces tough task Radio Australia (1/9/09)
Hatoyama faces daunting economic task BBC News (31/8/09)
DPJ needs to reinvigorate domestic economy of Japan China View (1/9/09)
Analysts worry DPJ’s policies may be a bane to Japan’s economy Channel NewsAsia (31/8/09)
Hamish McRae: Post election, what do the Japanese really want to do with their country? Independent (1/9/09)
Japan’s Government: Five Ways to Fix the Economy Time (1/9/09)
The vote that changed Japan The Economist (3/9/09)
Questions
- Paint a brief picture of the current state of the Japanese economy.
- What policies are advocated by the new government and what difficulties lie in the way of achieving the policy goals?
- What supply-side policies would you recommend for Japan and why?
Latest figures from the Bank of England show that the stock of personal debt has fallen for the first time since the Bank began recording the figures in 1993 (search for table LPMVTUV in the Bank of England’s Statistical Interactive Database). So why are people on average paying back more than they are borrowing and what will be the implications for the economy? The following articles look at the issues.
Record decline in UK lending threatens recovery Financial Times (1/9/09)
Britons’ mortgage repayments outstrip new loans Times Online (1/9/09)
Personal debt dips for first time BBC News (1/9/09)
Mortgage approvals rise again but repayments outstrip lending Guardian (1/9/09)
Exceptional times BBC, Stephanomics (2/9/09)
Personal debt falls BBC Today Programme (2/9/09)
UK personal debt levels fall (video) BBC News (2/9/09
For the July data from the Bank of England see:
Lending to Individuals: July 2009
and for later periods, if you access this news item after September 2009, see:
Lending to Individuals: latest
Questions
- What is the effect on aggregate demand of a net repayment of debt by individuals? What other information would you need to have in order to calculate whether aggregate demand is rising or falling?
- Use the Excel data from the Bank of England’s Statistical Interactive Database (linked above in the introduction to this news item) to trace the credit crunch.
- For what reasons have individuals switched from net accumulation of debt to net repayment of debt? Does this suggest that the fall in interest rates over the past 12 months has had a perverse effect?
- What factors have been determining personal saving and borrowing since the start of the credit crunch?
- What are the short-term and long-term implications of a reduction in personal debt?