Response from Kraft Foods to follow-up
questions from the Business, Innovation and Skills Committee
1. Cost of bid to Kraft in terms of advisors,
research and documentation
As part of our acquisition of Cadbury, we paid
approximately $40 million in transaction related fees in 2009.
Fees incurred during 2009 are disclosed in Kraft
Foods Form 10-K filing to the US Securities and Exchange Commission,
25 February 2010, and are not itemised according to individual
elements of the transaction. Further fees will be incurred during
2010 which are not yet available.
2. Names of advisors on the content and nature
of public statements Kraft made before the takeover. What was
the nature of their advice and how did it impact on decision to
make statement about Somerdale?
Kraft Foods was advised by Lazard & Co.
Limited, Clifford Chance LLP, Deutsche Bank AG, Citibank Global
Markets Limited and Brunswick Group LLP on the public announcement
it made on 7 September 2009. The statement concerning Somerdale
was included in that announcement. (For completeness, Ernst &
Young LLP provided the report on cost synergies contained in that
announcement.) Kraft Foods was advised that before making a statement
of belief in a public announcement in the context of a takeover
offer it had to genuinely hold the stated belief and have a reasonable
basis for holding the belief.
Accordingly, Kraft tested the Somerdale statement
against these criteria and concluded (for the reasons explained
to the Committee by Mr Firestone on 16 March) that it could properly
make that statement.
3. Kraft's commitments to reducing net carbon
emissions. Will Kraft retain Cadbury's commitment to an absolute
reduction in net carbon emissions of 50% by 2020?
We confirm Kraft's commitment to aggressively
reducing CO2 emissions. We will maintain the same aggressive intention
as Cadbury's target of 50% by 2020 (roughly 4-5% per year). Kraft
is on track to achieve its prior target to reduce by 25% between
2005 and 2011a similar annual rate of reduction to the
longer-term Cadbury goal. Kraft will adapt the reporting and measurement
process to ensure consistency across the combined company in tracking
progress. With both companies achieving similar results to date,
we are confident and committed to Cadbury's original goal and
intent.
4. Kraft's objectives regarding packaging
and waste. Will Kraft comply with Cadbury's objective to make
absolute reductions in packaging waste by 2010 and identify ways
to tackle food waste?
Yes.
5. Content and nature of communication with
Unite before takeover was agreed. What did Unite tell you about
Somerdale before the takeover was agreed?
There were several contacts between Unite and
Kraft Foods during the deal process before the offer was recommended
by the Cadbury Board on 19 January 2010. Unite sought details
from Kraft as to its plans for Somerdale, as Ms Formby said in
her evidence to the Committee, and said that it would be unfair
to raise the hopes of the workforce if no such details could be
provided. Unite indicated some scepticism concerning Kraft's ability
to keep Somerdale open. However, Unite did not tell Kraft that
Kraft would not be able to keep Somerdale open, or give Kraft
specific details from which Kraft could have reached that conclusion
independently. On the contrary, Unite sought assurances and guarantees
concerning Somerdale, privately and publicly, which Kraft was
unable to give for the reasons explained to the Committee by Mr
Firestone on 16 March.
Discussions with Unite will be taken forward
by Richard Doyle, whose next meeting is due to take place on 25
March.
6. Can we also have the profile of job losses
from Terry's of York after it came under Kraft management in 1993
(see Q 195 of transcript)
At the time we bought the Terry's business in
1993, around 1,350 people worked at the site. Over time, we implemented
several projects to improve cost effectiveness and capacity utilization
and we invested significant capital into plant upgrade and new
equipment. This investment was considered proportionate to other
Kraft Foods chocolate plants in Europe. However, volume declined
between 2000 and 2004, driven mainly by reduced export sales of
Terry's Chocolate Orange, and this together with the size and
configuration of the site, resulted in a cost structure that was
unsustainable.
A decision was taken to propose closure of the
site in early 2004 and this was announced on 19 April. The closure
plan was confirmed on 22 June 2004, following discussions with
unions that concluded there was no feasible alternative proposal
to continue making Terry's products in York. Closure was completed
in the second half of 2005.
No production was transferred from York to other
sites between 1993 and 2004.
7. What are Kraft's financial projections
for the next five years (eg revenue growth, profitability)? What
are the financial projections for the Cadbury part of Kraft's
business?
Cadbury plc's results will be consolidated with
those of Kraft Foods from 2 February 2010, onwards.
The combination of Kraft Foods and Cadbury is
expected to provide the potential for meaningful revenue synergies
over time from investments in distribution, marketing and product
development. As a result, the combined company is targeting long-term
organic net revenue growth of 5% or more (prior outlook was 4%
or more).
The combined company is targeting accretion
to earnings per share in 2011 of approximately $0.05 on a cash
basis, which excludes one-time expenses to achieve cost savings,
expenses related to the transaction and the impact of incremental
non-cash items such as the amortization of intangibles related
to the acquisition. Over the long-term, the combined company is
targeting EPS growth of 9 to 11% (prior outlook was 7-9%).
19 March 2010
|