What is mondelez international's corporate strategy

Corporate Strategic Analysis Report.

Expansion under Eli Hurvitz and Shlomo Yanai

After a series of consolidations within the Israeli home market, in 1976 the company became Teva Pharmaceutical Industries Ltd, Israel's largest healthcare company, and appointed EliHurvitz as the first CEO and President, a role he was to keep until 2002, when he took on the role of chairman until his departure from ill health in 2010. Under Hurvitz's control Teva's revenue would grow from

$30m in 1976 to $16bn in 2010, strongly focused on generic pharmaceuticals. Hurvitz identified the huge opportunity for generic medicines in the USA and Europe when the USA passed laws in 1984 encouraging the sale of generic drugs after patents had expired, if the manufac turer could prove they were equivalent to the origina molecule. This rapid growth was achieved through a series of European and US acquisitions focused on generic phar- maceutical companies, moving Teva away from domi- nating the local lsraelimarket to eventually becoming the uvorld's largest generic pharmaceutical company.

In the 1980s, a series of collaborations with Israeli university research departments, saw Teva beginning to develop non-generic or branded pharmaceuticals. By the mid-1990s, Teva's first non-generic drug, Copaxone® for the treatment of multiple sclerosis (MS), was approved in Europe and in the USA. Copaxone® still accounted for around 20 per cent of Teva's turnover and 50 per cent of profit in 2015. One of the cornerstones for the successfu expansion strategy was a strong focus on cost savings and the very rapid integration of acquired companies.

In April 2002, Hurvitz took on the role of Chairman and appointed another Teva insider, Israel Makov, who had joined Teva in 1995, as CEO. Although some acqui- sitions were made by Makov, it was a period of relative quiet for the company albeit with rumours of board room disagreements between Hurvitz and Makov. According to the journalist Mina Kimes, Eli Hurvitz still has a significant influence over Teva: '. . black and white portraits of him hang on the walls. Employees quote his favoured aphorisms, such as, "It's better to get a speeding ticket than a parking ticket." The company maintains an empty office in Hurvitz's memory at lts Jerusalem facility.':

following the resignation of Israel Makov in 2007, Teva recruited a high-ranking member of the Israeli defence forces, Shlomo Yanai. as Teva's President and CEO. Working with Hurvitz as Chairman. Yanaistated that Teva's aim was to achieve a sales revenue of around $33bn by 2015. Together they oversaw a doubling of sales revenue In lust three years, from $8bn in 2007 to $16bn in 2010. This was achieved by a dual approach of aggressive acqui- sition of competitor generic companies and diversifying

the company into over-the-counter (OTC) medicines and looking for branded pharmaceuticals to replace the aging Copaxone®. Aggressive growth in generics was accom- plished by the acquisition of Barr in the USA, Ratiopharm in Europe and Taisho and Taiyo in Japan. The company also announced an OTC joint venture with Procter & Gamble.

CASE STUDY

All change at Teva Justin Boar and Sarah Holland

Purchase of Cephalon and share price collapse

Af ter a period of ill health, Hurvitz stepped down in 2010 and the first non-Israeli Chairman, Philip Frost, a US-based billionaire, was appointed in his place. In May 2011, af ter a short bidding war, Teva successfully trumped a rival hostile bid from Valeant Pharmaceuticals to acquire Cephalon, a research-based pharmaceutical company of around 4000 employees located in Pennsylvania, USA, in a deal worth $6.8bn.

Cephalon posted sales of$2.76bn in 2010, up 28 per cent, and adjusted net income of $657m, an increase of 40 per cent. Growth was driven by the sleep disorder drug Provigil® and its follow-up long acting drug Nuvigil®, the cancer drug Treanda® and the cancer painkiller Fentora®. Cephalon also boasted a large research portfolio in several key areas central nervous system ('CNS'), oncology, respiratory and women's health, the most promising but highest risk being its proprietary stem celltechnology.

Valeant, an aggressively acquisitive Canadian pharma- ceutical company, had seen in Cephalon's established products an opportunity for further revenue growth and increased profitability, and had bid $5.7bn, but had discounted the value of the therapies in development. The takeover by Teva was welcomed by the board of Cephalon, which saw Teva as an organisation that valued their pipeline and would support their ambitious research and development plans. As Cephalon CEO Kevin Buchi said at the time: 'Teva shares our strong commitment to R&D, and we believe our pipeline will thrive under their leadership.'3 Mr Yanai added;

Introduction

After less than 18 tumultuous months as the head of Teva, the world's largest generic pharmaceuticals company, in October 2013 Jeremy Levin stepped down as CEO. He had been brought into the company in January 2012 to change Teva's strategy from that of the outgoing CEO and President Shlomo Yanai. a former high-ranking army officer, when it seemed clear that the target of achieving global sales of US$D 33bni by 2015 was no longer achievable, and the share price had subse- quently collapsed. lts third CEO within two years was appointed in 2014: Erez Vigodman, a company insider. who announced that Teva would introduce its third new global strategy in three years with a focus on product rationalisation, organic growth and cost saving.

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g Teva in a nutshell

p World's number one generic company e 15th largest pharmaceutical company e Sales of $19.7bn in 2015 e Product portfolio of over 1000 molecules e Active in 120 countries e 73 manufacturing sites B 45,000 employees

Teva's operating results for the years 2011-2015 are shown in the Appendix at the end of the case.

Sot/nce: Clynt Garnham Medical/Alamy Images.

Founding of Teva

Teva was founded in 1901 in Jerusalem as a small drug wholesale business that distributed imported medica- tions. It moved to manufacturing pharmaceuticals in the 1930s and had a considerable boost in the Second World

War supplying allied troops with medical supplies. By 1951, it was being listed on the lsraelistock exchange.

'0ur newly-expanded portf ono in CNS, Oncology, Respiratory and Women's Health along with our robust pipeline of more than 30 late-stage products truly cements our position as a leader in specialty pharma. . . . We are welcoming many of Cephalon's talented employees into the Teva family. The combina- tion of our two winning teams will position Teva to create maximum value for our patients and customers."+

This case was prepared by Justin Blag an

of good or bad practice. © Justin Boag and Sarah Holland 2016. Not to be reproduced ar quoted without permission. -'"'

Teva and Cephalon executives said they saw particular potential in a stem cell therapy for congestive heart failure under development with Mesoblast Ltd, in reslizumab

690 691

ALL CHANGE AT TEVA ALL CHANGE AT TEVA

for asthma and in the lung-cancer treatment obatoclax. Ori Hershkovitz, a partner at Sphera Global Healthcare Fund in Tel Aviv commented in an interview at the time: 'Teva's making four or five shots on goal with a very high- risk, high-reward kind of profile. If they pull off the stem cell product, they're in the clear. But if they pull off two or three of the others, it would also be a very good deal.'s

The company, however, had a number of significant chal- lenges: the rapid inorganic expansion in generic pharmaceu- ticals from 2007 10 meant that the manufacturing base was not consolidated, with over 100 manufacturing sites spread across a large number of countries. Supply chain and quality-control issues had also meant that, in the USA, crucial supplies of two generic drugs had not been made in 2009. The patent protection on Copaxone® was nearing expiry and, ironically for a generics company, around 20 30 per cent of the sales revenue and a significant amount of profit was at risk in the next two to three years of generic erosion with no obvious replacement in view.

The share price began to slide and a number of shareholders called for a significant reduction in costs and expressed dissatisfaction with the decision to purchase Cephalon. In response to this criticism and the falling share price, Philip Frost accepted the resin nation of Shlomo Yaniv and appointed Jeremy Levin, a South African born, UK-educated pharmaceutical executive with a highly successful track record at two major pharmaceutical companies. For the first time since its creation, Teva was headed by two outsiders. both non-Israeli citizens and with no previous experi- ence of Teva.

actively seeking new products as a replacement for Copaxone®. This strategy it was claimed would reshape the company into 'the most indispensable medicines company in the world ' and provide significant value to shareholders.7

Teva began a series of rationalisations and econo. mien. aimed at reducing costs by around $2bn per year, involving around 700 job losses in Israel. With the CEO working alongside the new Chairman it appeared the company had moved into a new era. As Philip Frost stated: 'Teva also must act like a global

pharmaceutical company. There's a lot of nostalgia for the good old days when it was a family company and the board got together for a little lunch. That's not what Teva is nowadays.'' Levin said Teva would sustain 'profitable growth ' but confirmed that the company would not achieve the ambitious previous target of $33bn revenue by 2015.

Key elements of the new strategy included:

. Tailoring the product offering to address regional needs. With its diversified portfolio, Teva was well placed to focus on high-value generics in the USA and Japan, but consumer OTC products in Latin America and Russia, for example.

e Rationalisation of the marketed generic product port- folio. Less profitable products were to be culled, while price increases were implemented for others.

e Globalizing key functions to streamline operations and gain economies of scale, cutting costs by $1.5 to $2bn per year.

. New R&D focus on high-value generics. Teva planned to leverage its huge portfolio of over 1400 medicines, and its extensive formulation and drug delivery exper- tise. to create new combination products that would be harder to imitate than traditional generics. These would offer medical value through improved efficacy or compliance, or reduced side-effects, in order to justify higher prices. For the first time, Teva would incorporate formal medical input to its generics business.

. Ref ocusing the R&D pipeline, with a strong emphasis on CNS and respiratory products. The oncology product obatoclax developed by Cephalon was discontinued.

. Formation of a drug discovery network comprising all the academic centres in Israel.

The announcement did not meet with shareholder

approval and the share price dropped by nearly seven per cent. Cost cutting and consolidation continued, mostly

without major workplace disruption, except in Israel where a number of sites threatened strike action. ,

lilt :l£l=«£: jill ' It ';:. ':=w management team. Dispute apparently came from two

directions:

. The Israeli board members who felt that the new CEO working alongside the Chairman failed to understand the unique culture of Teva.

p Rumoured disputes between Frost and Levin over the size and speed of cost cutting.

The relationship between board and directors was often challenging and at one point there were even stories that Levin had hired a private detective agency, which had used a polygraph test on board members to identify the source of boardroom leaks to the press.9

worked with Teva in the past. In July 2014, Teva announced a new commercial structure, effectively dividing the company into two business units, the Global Specialty Medicines group and the Global Generic Medicines group. They stated that this would bring a heightened focus on profitable and sustainable business, driven through organic growth of it two business units and in defending Copaxone® from generic competitors by launching a new higher dose formulation. They also stated they would increase their focus on key markets and on key products. The company stated that it would continue its cost-saving drive but would also look for appropriate business development opportunities

In April 2015, Teva launched a $40bn hostile bid to buy Mylan, a Netherlands-based rival generic pharma- ceutical manufacturer. The combined companies would have a turnover of around $30bn and a profitability of around $8bn. Teva argued that cost-saving synergies of around $2bn could be achieved by the acquisition. Teva believed that: 'The combined company would leverage its significantly more efficient and advanced infrastructure, with enhanced scale. production network, end-to-end product portfolio, commercialization capabilities and geographic reach '.:: Mylan rejected Teva's offer and took the unusual step of publishing the text of a letter sent from its CEO, Robert Coury, to Teva's Erez Vigodman, saying that he hoped Teva's culture would change and they would have more credibility in their future business dealings but that the Mylan board did not want to inflict Teva's problems on Mylan's shareholders. Coury went on to say:

Levin departs and Teva enters a new era n October 2013, following further press speculation and

a press story that the management team had sent a memo to the controlling board asking them not to intervene so heavily in management decisions, Jeremy Levin left Teva and the Finance Director was appointed as temporary CEO. The already-lowered share price reduced by a further seven per cent. In an investor call shortly af ter Levin's departure, Philip Frost stated; 'Since Levin's arrival, the board and management saw eye to eye when formulating the strategy. . However, differences of opinion arose between us as to how the strategy will be implemented. In the last few weeks we had talks with Levin and decided that it would be better for our ways to part.':o

Other insiders reported that the problems for Levin ran much deeper, not least a failure to understand the unique lsraelicharacter of Teva. As Eldad Tamir, from an Israel-based investment group stated:

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Levin's short tenure 'Levin entered a difficult situation. The need for a cultural and communicational connection to Israeli society is critical for Teva. This company is among the cornerstones of the local industry and its products can be found in every home. . . . Teva had an open relation- ship with its investors, employees and Israeli society. Instead of continuing the cultural tradition they brought in someone else, and it didn't work. There was no conti- nuity for the rootedness. Everything became cold and alienated. Teva needs a local leader.'n

'Since 2007, your Board has churned through three different Chief Executive Officers, running the only one with the global pharmaceutical experience, which we think is critical to the position, out of town within 18 months of being on the job. Any investor should be gravely concerned that an experienced lead executive could be dismissed over "slight differences" of opinion with the Board. We believe that these rapid changes in a short period of time have left the company with a complete lack of long-term strategic focus. While I recognize that you are fairly new to your position, I cannot ignore the fact that you were present on Teva's Board during some of the company's most turbulent and "dysfunctional" times. . . . Ten years of acquisitions and a flip-flopping strategy have left Teva with a smat- tering of assets in specialty, generics, biotech and consumer. You claim to want to "redefine the generics industry", but what faith can we have that you have any clear vision for the industry at all? And how can inves- tors be assured this "redefinition" will not be aban- doned for yet another new strategy?'''

On the announcement of his appointment, Teva's share price increased, major shareholders seeing Levin's strong pharmaceuticalbackground as a good fit for the company. Levin told journalists on his appointment;

& 'Teva is a company with a unique culture. In the time I have been here, I have had the opportunity to meet the leadership and talent that has made Teva the successful company that it is today. In my experience, Teva has some of the best people in the industry with a level of drive, determination and innovation that is second to none. . . . We will continue to be innovative by focusing not only on how we commercialize but also on how we discover, develop and manufacture - all of which start from the same point - world-class R&D.''

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Erez Vigodman: a new/old strategy for Teva? After an extensive international search, a local leader, the Israeli turnaround specialist Erez Vigodman, became Teva's President and CEO in February 2014. He had joined Teva's Board of Directors in 2009. Shortly after- wards, following rumours of disagreements with the new CEO, Frost resigned and a new Chairman was appointed in his place: Yitzhak Peterburg, an lsraelicitizen who had

ALL CHANGE AT TEVA

The board of Teva replied that they rejected many of the statements in the letter and reiterated their interest in the purchase of Mylan.

Teva's strategic future?

I :i:i: zl * ilu;nile'::E:i+ expansion in generic pharmaceuticals through aggressive acquisition of competitor manufacturers, as originally laid down by Eli Hurvitz. With closely cooperating lsraeH Chairman and CEO, and a stock market eager for further growth, further inorganic growth in the coming years was anticipated. Time will tell, however, if Teva is able to follow the other part of Hurvitz's former strategy: rapid integration of new companies and consolidation and rationalisation of the manufacturing capacity. Notes and references 1. $1 - £0.6 : €0.75.

2. M. Kimes, 'Teva returns to roots after outside CEO faces "nuthouse" B/oomherg, 4 March, 2014

3. Teva, 'Teva to acquire Cephalon in $6.8 billion transaction ', press release, 2 May 2011

4. Teva, 'Teva completes acquisition of Cephalon ', press release, 14 October 2011

5. N. Kresge and R. Langreth, 'Teva bets on stem cells, cancer in $6.2 billion bid for Cephalon ', £3/oom6eng, 3 May 2011

6. S. Griver, 'Meet Jeremy Levin, the new head of drugs firm Teva ', ./ew7sh Ch/on/c/e, 17 May 2012.

7. B. Berkrot, 'Teva CEO promises to reshape, refocus company ', /?eufen. 11 December 2012.

8. D. Wainer, 'Billionnaire doctor prescribes small Teva deals for Israeli giant ', £3/oomheng, 5 March 2013.

9. T. Staton, 'Teva's ex-Ceo reportedly forced polygraph tests on board to plug media leaks', f7encePh.am?a, 5 November 2013.

10. A. Weisberg, 'Teva chairman: "the company is stronger than ever"', 30 October 2013, http://www.jerusalemonline.com/finance/teva-chair- ma n -the-com pa ny-is-stronge r-tha n-eve r-2 162 .

11. N. Zommer, 'Can foreign CEO make it here?', Hnefnews, ll March.

12. Teva. 'Teva proposes to acquire Mylan for $82.0C) per share in cash and stock ', press release, 21 April 2015.

13. Mylan, 'Mylan board unanimously rejects unsolicited expression of interest from Teva ', press release, 27 April, 2015.

14. M. de la Merced and C. Bray, 'Teva pharmaceuticals to buy Allergan's generics business', /VeK ' Honk 77mes, 27 July 2015.

15. Teva, 'Teva to acquire Allergan generics for $40.5 billion dollars creat- ing a transformative generics specialty company well positioned to win in global healthcare ', press release, 27 July 2015.

2013

CASE STUDY

Mondeliz International: 'Are you going to stick around, Irene?' Acquisition, de-merger, divestment and governance in the growth strategy of Mondeliz International Eric CassellsE

Teva buys Allergan's generic business

In a surprise move in July 2015, Teva announced that they were dropping the attempt to buy Mylan, as they had instead entered into a definitive agreement to acquire Allergan's global generic pharmaceuticals business for $40.5bn, with Allergan receiving $33.75bn in cash and $6.75bn in Teva stock. Under the agreement, Teva would acquire Allergan's globalgenerics business, including the US and international generic commercial units, a third party supplier, global generic manufacturing operations. the global generic R&D unit, the international over-the- counter (OTC) commercial unit (excluding OTC eye-care products) and some established international brands. The acquisition would mean that around 70 per cent of future turnover would be from the sale of generics.

The deal, the largest in Israel's corporate history. was generally welcomed by shareholders and stock market analysts: 'Allergan's business is more high-end [than Mylan]. It's a more interesting business . . . a profitable business and it's well managed,' said Gilad Alper, an analyst at brokerage Excellence Nessuah.i4

Yitzhak Peterburg said:

This case explores corporate strategy as it emerges over time, through the example of Mondeliz International. The origins of Mondeliz lie in the long-term growth strategy to create a global snacks business within what was the Kraft food group. The case focuses on the initial major acquisition of Cadbury PLC by Kraft as a means to achieve scale and global coverage in snacks, the subsequent de-merger from Kraft's slow-growing grocery business, and the divestment of the more volatile coffee business into an equity alliance ('JDE ') to allow the creation of a focused Mondeliz snacks business. All of these events occur against the backdrop of pressures to deliver against corporate forecasts built on expectations of growth in a volatile marketplace, and the pressures on the corporate managers dealing with activist and short-term investors is also considered in some detail.

The ChicagoBusiness.com line on 6 August 2015 was attempting to put Irene Rosenfeld in play, with the ques lion: 'Are Monde16z CEO Irene Rosenfeld's days numbered?' it followed a period of market speculation over whether Pepsico (or another competitor) would acquire Mondelaz, and the announcement of a 7.5 per cent stake acquisition in Monde16z by 'activist ' share- holder William Ackman and his Pershing Square Capital Management on 5 August. Come 23 December, Irene was very much stillin place at Mondelez, and CNNMoney nominated her as one of their top ten 'Best CEOS of the year ' for 'coping with activists'. A few days earlier in the UK. the arena of her bitter acquisition of Cadbury in 2009 10, the /ndepe/7dent newspaper profiled her as 'the ( . . . ) chocolate boss with a hard centre '.

entire Kraft group. In 2011, Kraft announced it would de-merge, with its North American grocery business retaining the Kraft name, and its larger international snacks and confectionery business being named Monde16z. Irene Rosenfeld chose to stay as the CEO of Monde16z.

Ms Rosenfeld is recognised as a powerful business- woman (ranked 17 in 2014 in Forbes' annual list of 'The World's 100 Most Powerful Women '). Less welcome recognition, perhaps, is her honourable mention in 2013 in F7columnist Lucy Kellaway's annual business Golden Flannel Awards, in the Chief Obfuscation Champion cate gory. Her profile in the /ndependenf (December 2014), however, notes her 'legendary ' reputation for attention to detail, an ultra-competitive streak derived in part from a sporting background, her boldness in making brave moves, and her willingness to 'face off . . formidable foes.' it also reports views that she can be 'remote and clinical '.

'This acquisition will result in significant and sustained value creation for our stockholders, reinforces our strategy, accelerates the fulfilment of a new business

model. strongly supports top-line growth and opens a new set of possibilities for Teva. Together with Allergan Generics, Teva will have a much stronger, more effi- cient platform to achieve our goals - both financially and strategically - with the right platform for future organic and inorganic growth."5

The rise oflrene Rosenfeld

Born in 1953, Ms Rosenfeld spent the first decade of her career accumulating degrees (including a PhD in Marketing and Statistics) from Cornell University. Af ter a brief spell in advertising. she joined General Foods, at the start of a 30-year plus career in the food and beverage industry. In time, General Foods was acquired by Kraf t, and Ms Rosenfeld has largely stayed within this one evolving group ever since. Arguably, her key career break came on the one occasion she ventured outside the Kraft group in 2004, to become chair and CEO of Pepsico's large snacks business - Frito-Lay. By June 2006, Kraft had wooed her back to become CEO of the

APPENDIX: Teva's operating data Transforming Kraft PLC

the acquisition of Cadbury

For the year ended 31 December Prior to the de-merger of the Kraft Corporation in 2011. Irene Rosenfeld was at the centre of one of the most controversial hostile acquisitions of recent decades. Between August 2009 and February 2010, Kraft fought a hard battle to acquire the UK confectionery giant, Cadbury PLC, eventually acquiring it for f11.5bn (€13.8bn, $17.3bn).: Cadbury was a pillar of the British

2015 2014 2013 2012 2011

US$m (except share and per share amounts)

Netrevenues Cost of sales Gross profit Research and development expenses Selling and marketing expenses General and administrative expenses Impairments, restructuring and others Legal settlements and loss contingencies Operating income

The case was prepared by Eric Cassells. of the Business and Management Department at Oxford Brookes University Business School. UK. It is intended as a basis for class discussion and not as an illustration of good or bad practice. © Eric Cassells. 2016 Not to be reproduced or quoted without permission.

Source: 2015 Annual Report of Teva Pharmaceutical Industries Ltd.

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19.652 20,272 20,314 20,317 18,312 8,296 9,216 9,607 9,665 8,797

11,356 11,056 l0,707 l0,652 9,515 1,525 1,488 1,427 1,356 1,095 3,478 3.861 4,080 3,879 3,478 1,239 1,217 1,239 1.238 932 1,131 650 788 1,259 430

631 (1 1 1) 1,524 715 471 3,352 3.951 1,649 2,205 3,109

MONDELEZ INTERNATIONAL: 'ARE YOU GOING TO STICK AROUND, IRENE? MONDELEZ INTERNATIONAL 'ARE YOU GOING TO STICK AROUND, IRENE?

Table I cited that: 'The Kraft takeover of Cadbury has proved to

be an event which is likely to shape future public policy towards takeovers and corporate governance.'3 The report was highly critical of the behaviour of Kraft, and bloggers gleefully described MPs as 'fighting each other to lay into Kraft.' MP Lindsay Hoyle, at one point queried whether Kraft is 'remote, smug, and . . . duplicitous'.

The more measured tones of the Committee's report focused on two issues primarily:

1. Kraft made a promise (made during the takeover battle) to reverse Cadbury's recent announced decision to close its Somerdale factory and move that produc- tion to Poland. The promise (to reverse the closure) was subsequently withdrawn by Kraft less than three weeks after it took control of Cadbury, and production moved to Poland regardless. The Committee's formal conclu sign was measured but damning, opining that: 'Kraft acted both irresponsibly and unwisely in making its original statement . . . (and) has left itself open to the charge that either it was incompetent in its approach . . . or that it used a "cynical ploy" to improve lts public image during its takeover of Cadbury.':

2. The Committee also expressed their 'disappointment ' that: 'Irene Rosenfeld, the Chairman and CEO of Kraft foods Inc. did not give evidence in person. Her attendance at our evidence session would have given an appropriate signal of Kraft's commitment to Cadbury in the UK and provided the necessary authority to the specific assurances Kraft have now given to the future of Cadbury.':

Neither that refusal to attend, nor the manner of it reflected well on Kraft . . . '4

Kraft strategic priorities The importance of the Cadbury acquisition

Focus on growth categories to transform Kraft into a leading snack, confectionery and quick meal company. Expand its footprint and scale in growing developing markets.

:::=i:'£E:?:' £!::' b 7:a=;- '-: ..-'..-:.-;i;=' Cadbury oilers Kraft a complementary presence in developing markets, with Kraft strength and channels in Brazil, Chinaand Russia, and Cadbury in India, Mexico and South Africa.

Kraft's strength lay in traditional grocery channels, whereas Caan....- was well placed in 'instant consumption ' channels. '' ''"duly

The Cadbury acquisition as part of a longer-term strategy

Warren Buffet reduced his holding in Kraft from 9.5 per cent to nearer 6 per cent in the immediate aftermath of the bid. His comments at the time reflected the belief that bidders of ten overpay to the detriment of their share- holders, and that Kraft would suffer the 'winner's curse (of having paid too much for synergies that would take much longer to deliver, or of ignoring the real costs of post-acquisition integration).

On the release of Kraft's fourth quarter results for 2010, commentators believed that shareholders were still 'wondering whether they bit off more than they could chew when they put up f11.5bn for Cadbury last year.'5 Net profits had fallen 24 per cent to $540m in the quarter, reflecting the scale of integration costs, and a 'disap pointing ' 2.2 per cent rise in Cadbury's like-f or-like sales, well behind the 5 per cent sales growth that Cadbury had posted in its last period of independence. The deal had certainly not yet shown itself to be the transformational move that Ms Rosenfeld staked her reputation on. Kraft's next move to transform itself was less expected.

When interviewed on Bloomberg TV on 16 September 2010, Ms Rosenfeld re-affirmed that Cadbury was 'a critical piece of the puzzle we have been trying to complete.' On 4 August 2011, Kraft announced its inten bon to split into two separate corporations, and the crit- icality of the Cadbury acquisition became more obvious.

Kraft said these two businesses, 'differ in their future strategic priorities, growth profiles and operational focus.'s The lower-growth North American grocery foods business was to include brands such as Kraft cheeses, Maxwell house coffee and Capri Sun, with revenues of $16bn. At the same time, a more focused but globally spread snacks and confectionery business (including Trident gum, Oreo cookies, Milka chocolate and Cadbury) would have estimated revenues of $36bn, with over 100,000 employees in 80 countries. This snacks busi- ness was poised to take advantage of the perceived shifts in consumer behaviour towards snacking, rather than cooking two or three meals each day.

Within the confectionery arm of that global snacks business, Cadbury brands represented over 80 per cent of revenues. The rationale for the global snacks business remained that which drove the Cadbury acquisition; to move into higher growth segments as a 'snack, confec- tionery, and instant consumption ' company, and to increase footprint and 'white space ' synergies for 'iconic brands' in fast-growing emerging markets.

Increase presence in 'instant consumption ' channels as they continued to grow relative to traditional grocery channels in the established US and EU markets.

Pursue margin growth, through improved portfolio mix, reducing costs and investing in quality.

The higher exposure to confectionery of a post-acquisition Kraft would provide Kraft shareholders with an improved portf ono of higher-margin growth products.

business establishment and had a history as a benevo- lent employer, noted, for example, for pioneering employee pensions. The company was rooted in the communities it operated in (notably at Cadbury's head- quarters in Bourneville, south of Birmingham, where a model village was constructed after 1893 to show how employees could be better housed in the factory age).

Kraft's rationale for acquiring Cadbury was laid out in its bid offer documents (see Table I).

Kraft's bid did not attract the uniform support of its own investors. The largest shareholder in Kraft was Berkshire Hathaway, led by the prominent investor Warren Buffet, arguably the most influential and best- known investor in the world, and a favourite of the US financial news channels. On 16 September 2009, Buffet warned that Kraft must not 'overpay ' for Cadbury, expressing concern at the offer to Cadbury of an 'attrac- tive' EBITDA multiple of 13.9 times. Buffet was a long- term supporter of the Kraft corporation, holding 9.4 per cent of shares. More provocatively, perhaps, on Bloomberg's business news channel on 19 January, whilst describing Kraft CEO Irene Rosenfeld as a 'good person ', Buffet described the increased final takeover offer as a 'bad deal '. He dismissed the potential synergy benefits identified in Kraft's offer document, saying he was distrustful of unrealized benefits. He stated that, 'If I had a chance to vote on this, I'd vote no '. Referring to the proposed acquisition of Cadbury, he concluded, 'l feel poorer '. Kraft's shares fell two per cent on his inter- vention.2 Irene Rosenfeld was asked about Buffet's inter- vention on Bloomberg TV. Refusing to be drawn, she stated that she believed Buffet was evaluating the deal from the basis of existing cash flow and that he was ignoring the potential transformational synergies that were at the heart of the strategy to acquire Cadbury.

In addition to the 'transformational ' rationale put forward by Kraft for the deal, the offer documents iden- tified potential cost savings of $625m. The $625m was to come from savings and scale economies in procurement.

manufacturing, customer service, logistics and R&D ($300m), generaland administrative costs($200m), and marketing and selling costs ($125m). These savings esti- mates were in line with historic transaction experience for the sector at 6.5 per cent of revenues.

Resistance to the deal in the UK was led by the trade unions (concerned that up to 7000 jobs might be lost as

part of those 'savings'). by the nationalist heritage lobby (concerned by the impact on Cadbury's communities. and concern for national prestige with the loss of a large global corporation headquartered in the UK), and by Cadbury family members (concerned that a distinctive

'values-led ' corporation would be destroyed). Local and UK national governments also expressed their concern that Cadbury's base in the UK (including its R&D centres), and its status as a global leader in confec- tionery, might be subverted.

In the event, Kraft was forced to raise its offer for Cadbury by over 12 per cent (Warren Buffet's 'bad deal ') to secure the recommendation of the Cadbury board, and concluded the deal in late January 2010. Their case may have been helped in no small measure by the interven-

tions of short-term traders and hedge funds, increasing their aggregate holdings in Cadbury from about five per cent in August 2009 at the start of the bid, to an esti- mated 40 per cent by the end. Cadbury argued that the actions of these short-term arbitraging investors effec- tively de-stabilised Cadbury's defence. Concerns over their behaviour and interests were also raised by UK politicians during and af ter the acquisition.

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g Indeed, during the proceedings, MPs simply demanded'where's Irene?' and lambasted Kraft's senior represent- ative at the hearing, Marc Firestone, as an 'apologist ' for her. calling her absence a 'sizeable discourtesy'.3 The Da/P ne/egraph newspaper quoted Ms Rosenfeld's robust response that: 'Attendance would not be the best use of my personal time.'

As to the commitments Kraft made to the BIS, in December 2010 a plan to shed 200 jobs at Cadbury's Bourneville plant was announced. At the same time, Kraft announced a £17m investment in research at its designated sole global 'Centre of Excellence for Chocolate ', now located in Bourneville. The BIS Committee revisited events in April 2011 to monitor Kraft's commitments. Concern was expressed at poor engagement between Kraft and the trade unions, and the perception that strategic decisions over the Cadbury brands were being made in Kraft's European headquar- ters in Zurich. More personal criticism followed for Ms Rosenfeld: 'In a repeat of our predecessors' experience, Irene Rosenfeld (. .) refused to give evidence despite repeated requests from us that she should appear.

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MONDELEZINTERNATIONAL 'ARE YOU GOING TO STICK AROUND, IRENE? MONDELEZ INTERNATIONAL 'ARE YOU GOING TO STICK AROUND, IRENE?

The de-merger took place on I October 2012 when the North American grocery business started trading as Kraft Foods Group Inc., whilst the global snacks business became Monde16z International, with Ms Irene Rosenfeld firmly at its helm. Benefits from the Kraft de-merger were to be 'evident in the first year '.' The Kraft Foods Group commenced trading on NASDAQ, and gained 2.99 per cent in the day's trading to reach $45.42. On the same day, shares in Monde16z International opened at $28.42, before softening to $28.01.

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analysts approved.:' Particular comments were made on Monde16z's focus on emerging markets, with their three. cluster priority strategy of targeting: first, the BRIC markets, followed by 'next wave ' markets (Indonesia Middle East and Africa), and finally 'scale ' market Oppor- tunities in Australia, Japan, Mexico and Central Europe. Whilst Cadbury had provided much-needed presence in the Indian market, strength in the Chinese market carne from the dominance of the Oreo cookie in the biscuit/ cookies market. In May 2013, it was reported that $600m was to be channelled into advertising and supply chain improvements in these markets over the following three years.

Writing about the wider 'packaged foods' sector in March 2014, Skelly:: noted that Monde16z (with 2.2 per cent global maket share) faced strong competitors in Nest16 (3.4 per cent), Pepsico (2.1 per cent), Unilever

(1.7 per cent), Danone (1.4 per cent), Mars (1.4 per cent) and others such as Kraft Foods, Kellogg, Genera Mills and Lactalis, all of which were aware of the impor- tance of the emerging markets. MondelQz's key strengths were seen as; a more even global distribution of their key brands (see Figure 1); owning nine globally recognised 'power brands' (see Figure 2); expertise and potential for 'cross-branding ' to leverage those power brands and fil in the market 'white space '; a strong supporting network of manufacturing and distribution facilities in Latin

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Trident+' Milka

Mondeliz strategy after de-merger + Cadbury

The name 'Mondeldz ' was coined by two of the compo ny's employees in response to a naming competition, a composite of Romance/Latin words for 'world ' and 'deli- cious'. It was chosen to evoke the global ambitions needed to take on the 'global titans' of Pepsico's snacks business, Frito-Lay, and Nest16 SA. The name was intended only as a 'small print ' label, with the famous brand names such as Ritz, Oreo, Cadbury and Milka taking prominence for consumers. Despite the intention that it was not to be a consumer brand, some queried the failure to spend money to use a professional naming agency, and others criticised the chosen name as having meaning only in the Mediterranean Latin countries of France, Spain, Italy and Portugal: 'l doubt that its connotations are going to be so obvious to English, German, Japanese, or Chinese speakers . . . it's saving grace is that it's lust a name for a corporate entity.''

The two main strands of the Monde16z strategy were laid out by Tim Cofer, European president at Monde16z International, speaking in October 2012: 'Forty-four per cent of our revenue will come from the emerging markets, benefitting from the growth there,' with Europe accounting

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0 1000 2000 3000 4000 5000 6000 7000 8000 9000 Retailvalue sales 2014(US$ million rsp)

figure 2 Monde16z billion dollar brands: retail value sales 2014 vs percentage growth 2013 bounce: Skelly/fu/onion/toc 2014.

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America, Asia Pacific, Eastern Europe, Middle East and Africa; and a strong position to exploit future biscuit growth in India. Set against these competitive strengths. however, they had weaknesses in the US chocolate confectionery market (where the historic rights to manu- facture Cadbury products lay instead with Hershey), a virtually complete reliance on sweet (rather than savoury) snacks, and greater exposure to volatile cocoa and coffee commodity prices.

The Monde16z power brands in the 'packaged foods' sector were concentrated in the two categories, confec- tionery and biscuits (see Figure 3). Monde16z was the

dominant manufacturer of biscuits in the world, with 18 per cent market share (six times larger than Kellogg in second place), and with four of the top five labels (Oreo, TUC, LU and Nabisco). With Cadbury, Milka and Trident, it also accounted for the largest 14 per cent global market share in confectionery

This narrowed product portfolio (by 'packaged food ' sector standards) was, of course, the very result of the de-merger, and in pursuing these higher growth busi- nesses, Monde16z had arguably increased its depend ence on the performance of the confectionery and biscuits markets. Within these categories, the heightened

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Market size 2014 (US$ billion)

600 700 800 50.000 100,000 150,000 200,000 250,000 300,000 350.000 400,000 450,000 500,000

Market size 2014(US$ million rsp) figure I Monde16z's balanced geographic portfolio 2014 and growth 2014 2019 by region /Vote: Bubble size shows company shares of region in 2014; range displayed 0.4-3.1%.

Source: Skelly/fu/onion/to/1 2014.

figure 3 Monde16z product category portfolio 2014 and growth prospects 2014-2019 by category /Vote: Bubble size shows company share of category in 2013; range displayed 0.4--18.0%