Kraft-Cadbury: Making Acquisitions Work

Most acquisitions don't deliver the expected results, according to RHR Intl's research. Here's how both companies' leadership can boost the chances for success

By Guy Beaudin

After months of negotiations, Kraft (KFT) announced last month that it would acquire U.K. confection giant Cadbury (CBY) with a revised bid of $19.5 billion. The acquisition of Cadbury by Kraft will generate a joint portfolio of more than 40 confectionary brands, each with annual sales in excess of $100 million, essentially creating the world's biggest confectionary company.

Both Kraft and Cadbury have a lot at stake to make this deal work. Statistically, deals this complex have a high rate of failure. In fact, research conducted by RHR International found that 70% of acquisitions fail to deliver the expected results. Despite the discouraging data, there is much the leadership teams at both Kraft and Cadbury can do to put the odds in their favor.

Here is a look at the immediate challenges and what leadership at each company can do to mitigate them.

• The negotiation process was hostile.

Cadbury declined Kraft's initial offer. Compounding the issue was that the dialogue (which was hostile at times) between the two companies played out in the news for months prior to inking the final deal. Fence-mending will need to take place before any real integration can begin.

• They are iconic brands that have long pursued different positioning.

Corporate and national pride behind both companies is strong. For Cadbury, coming to terms with the fact that it may have to merge some of its identity with Kraft could be especially difficult. (Let's face it—Cadbury is nearly as important to British culture as the Beatles.) Although this issue is largely a marketing/positioning question, it will have impact on the reaction of both organizations to the acquisition.

• Perceived dominance.

Cadbury executives might assume that Kraft will adopt a dominant approach. Kraft will have to make their intentions with Cadbury clear as soon as possible to avoid unnecessary speculation.

• There is a learning curve.

Kraft purchased Cadbury to break into emerging markets, and it will take Kraft some time to learn the nuances of working in those markets.

• Tough decisions are inevitable.

Because Kraft borrowed heavily to buy Cadbury, it may be focused on revenue in the short term. Some difficult decisions could be on the horizon.

Making the Deal Work

Putting the challenges aside, the first 100 days after a deal is announced can determine the success or failure of the acquisition. In this situation, one of the best strategies to bring the two teams together is to identify common goals. Experience shows that the more quickly individuals from both companies get to work together on common projects with common goals, the better the integration will work.

At the same time, management must make quick, yet considerate, decisions on divisive issues. There has already been speculation around pending layoffs at both Kraft and Cadbury, which diminishes productivity at all levels. Management will need time to determine the best blend of talent, but it is a top priority and must be executed swiftly so that people can move on as soon as possible.

At first glance, Kraft and Cadbury appear to be very different companies. But the reality is that they have much in common; after all, they are both consumer-product companies that specialize in confection and packaged foods. The leadership team can capitalize on this by having talent from both organizations work jointly on projects. This will encourage employees to focus on their similarities, rather than their differences.

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