Thomas White Global Investing
Global Players

Global Players

February 2010

Irene Rosenfeld, CEO, Kraft

“Cadbury is an icon. We are not going to get rid of it. It generates enormous recognition and love and loyalty. I believe it’s a very important asset in the acquisition.”

— Irene Rosenfeld on the Cadbury deal

Salt and sweet, white and dark. Can these opposites, which are used to describe cheese and chocolate, effectively mix? With Irene Rosenfeld the CEO of Kraft Foods wielding the wand over the Kraft-Cadbury union, the improbable can happen.

On January 20, 2010, Cadbury finally melted at Kraft’s offer to buy the company for $19 billion, a price that elicited scoffs for being too high. The final deal consists of 40% stock and 60% cash, and will pay $1.31 per share to Cadbury shareholders. The audacious pull-off comes at a price tag 9% higher than the opening $16.7 billion that was offered back in September 2009.

For Chicago-based Kraft, the arrangement is laced with multiple sweeteners. It opens doors to emerging markets like India, Brazil and Mexico where Kraft is yet to make itself a ubiquitous presence on supermarket shelves. And due to operational, administrative, and marketing synergies, the company calculates that $675 million in annual savings, 50% more than previously expected, will jingle in its registers by the third year. But apart from that, the acquisition of Cadbury makes Kraft a food industry colossus presiding over 135,000 employees. With Cadbury tucked under its arm, Kraft moves to being the number two food company in the world second only to Nestle.

To snare the 200-year old legendary chocolatier, Rosenfeld had to do a volte-face at the last moment. With typical unrelenting persuasion, Rosenfeld chipped away at Cadbury’s resistance while refusing to raise the stakes since the initial September offer. But after a tense meeting with top shareholders in January, Rosenfeld knew she had to change her strategy and up the bid to edge past the finish line, which gleamed temptingly close. Competitors Nestle and Italian confectioner Ferrero, lingering in the background, fueled the intrigue.

Kraft has been Rosenfeld’s playing ground for more than two decades, with the exception of a brief stint at PepsiCo’s Frito-Lay division. Returning to Kraft in 2007 after this hiatus, Rosenfeld set forth to rescue the company from feeble sales and sagging growth. Drawing up a multi-pronged plan of action for the next three years, Rosenfeld swung into action by acquiring the biscuit and cereal unit of French food giant Danone for $7.2 billion in the same year.

Subsequently, Rosenfeld sifted and replaced management at Kraft, sold its frozen pizza business, introduced a microwaveable adaptation of the extremely popular macaroni and cheese entree and launched the Cadbury bid. Her strategies, followed at a steady but fast pace, injected life into the company’s market presence, rejuvenating its market share and reversing a toppling four-year sales record. Cost savings from the business-restructuring program, completed in 2008, shielded the company’s profitability in 2009, despite stagnant revenues.

At Kraft, Rosenfeld has carved a path defined by creativity and radical thinking. Her colleagues never cease to be amazed by her uncanny perception of what the consumer wants, an innate ability perhaps honed by an MBA and PhD in marketing and statistics combined with a psychology degree.

But Rosenfeld has immersed herself in understanding the nuances of consumerism all her life. Jim Kilts, once her boss, says that Rosenfeld can predict trends with great insight. “Irene is forceful and analytical but she is also warm, and she understands what people want,” he tells The Times. And this should give Kraft an edge. That said, all it took was a tiny twist by Rosenfeld in the Oreo recipe to make it into one of the fastest selling cookies in China.

Yet the Cadbury deal has been received with mixed reactions, especially from Warren Buffett, who thinks Rosenfeld has overpaid. Kraft’s biggest shareholder admitted that he did not “want her making this particular deal.” Kraft now has to borrow $11.5 billion to clinch this mega union, sparking fears of job cuts. With her characteristic composed demeanor, Rosenfeld is unwavering and resolute in her direction.

Will Rosenfeld’s move prove to be successful? For the sport-loving CEO who describes herself as a ‘fearsome’ tennis player this is another match she has to win. It seems that Rosenfeld’s personality has been hardwired for perfectionism, whether it means earning straight A’s as a student, claiming victory as an athlete, or rearranging the Kraft products to her satisfaction on the shelves of her local grocery store. For the 56-year-old Rosenfeld, voted sixth most powerful businesswoman by Forbes, that relentless quest for perfectionism will now extend to the Cadbury brand as well.





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