Kraft: Nabisco acquisition casts a long shadow

by Josh Sosland
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Explaining the rationale for seeking to acquire Cadbury P.L.C., "it’s about growth" is the consistent answer of Irene Rosenfeld, chairman and chief executive officer of Kraft Foods Inc. Owning Cadbury would help raise the annual earnings-per-share growth target to 9% to 11%, up from its current target of 7% to 9%, she said.

When questioned by a Wall Street analyst about the degree to which recent major food acquisitions have failed to produce growth, Ms. Rosenfeld emphasized that Kraft was trying to acquire Cadbury to fuel sales and earnings growth. But when she spoke of Kraft’s track record, her response rang a bit hollow. Ms. Rosenfeld noted that in each of its major recent acquisitions, cost synergies predicted ahead of the transaction were fully achieved. True, but cost savings and synergistic sales and earnings growth are not the same.

In truth, it isn’t surprising that Ms. Rosenfeld sidestepped this issue. It would be very difficult for her to identify large acquisitions in the past decade that meaningfully drove sales and earnings growth. Most notable, the 2000 acquisition of Nabisco for more than $18 billion was intended to catapult Kraft into the future by making the company a major player in the lucrative snack market. Instead, Kraft has struggled, in part because Nabisco’s business has not met expectations.

Other major transactions from the period had similar outcomes. Financially, Kraft has done better since Ms. Rosenfeld took the helm, but whether she is able to sustain the momentum of the company’s existing businesses remains a crucial question regardless of whether Cadbury is acquired.

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