Cadbury takeover will help Kraft

Article Excerpt

Kraft’s stock fell from $29 to below $26 after it launched its takeover bid for U.K.-based chocolate maker Cadbury in September 2009. That’s partly because prominent Kraft shareholders, including billionaire Warren Buffett, felt the price for Cadbury was too high. (Buffett later cut his stake in Kraft to 6% from 8%.) Buying Cadbury also increased Kraft’s exposure to Europe. Investors worry that high levels of government debt in Greece, Spain and other European countries will hurt Kraft’s overall earnings. These debt problems will probably have little impact on chocolate demand. However, concern about European debt is pushing down the euro. That means Kraft’s European profits translate into fewer U.S. dollars. Of course, growing by acquisition exposes Kraft to hidden risks. But Cadbury, which began making chocolate in the 1850s, owns some of the industry’s best-known brands. That makes it hard for competitors to cut into its market share, no matter how good their products. Cadbury’s growing presence in developing markets should also…