PHILADELPHIA/LONDON/CHICAGO (Reuters) - To clinch the deal of a lifetime, Irene Rosenfeld needed to make an abrupt about-face.
The chief executive of Kraft KFT.N, a household name in U.S. food, got the engines of her corporate jet fired up late on Saturday January 16 and took off for London, after returning from the UK just two days earlier. With a deadline to declare Kraft’s final offer for Britain’s Cadbury Plc CBRY.L less than 72 hours away, Rosenfeld had to grasp the initiative.
This time she was heading back for a meeting with Cadbury Chairman Roger Carr and had no intention of leaving without a deal, even if that meant straying from a strategy that had played out over nearly five months and tested her leadership.
Investors, bankers and others involved in the $19.6 billion friendly deal said mounting pressure from disgruntled Cadbury shareholders prompted Rosenfeld to raise her bid for the 186-year-old maker of Dairy Milk chocolate.
As recently as Friday January 15 , a source involved in the Kraft side of the deal told Reuters that Cadbury investors who sought a deal price of 820 pence to 850 pence per share from a standing offer of around 771p “must be on crack.”
Rosenfeld had taken a hard line and refused to raise the bid since first proposing a deal on August 28. While she knew a sweetener to the hostile bid would be in order, she had strict guidelines on maintaining Kraft’s investment grade ratings and a warning from top shareholder Warren Buffett against printing money with new shares.
But Rosenfeld realized she needed a different tack after sitting down with dozens of top Cadbury shareholders on Wednesday January 13 and Thursday January 14.
Many of those present said she did much more listening than talking, and the overwhelming message was that a bid needed to be closer to 850p per share. Rosenfeld was also taken aback that some investors flatly refused a meeting, but she knew time was running out, said a source close to Kraft.
“The meetings with shareholders in London were an eye-opener. People were dogmatic about what price they’d accept and it was far above what we expected after all this time,” said this source. “We thought they were just playing hardball and asking for the moon, but the same refrain kept getting repeated. It sunk in that we had to do more and we didn’t have a lot of time.”
At one such meeting with nearly a dozen hedge fund managers the Thursday, Rosenfeld appeared relaxed and confident, said a person who took part. Investors were clear about wanting a price of 840p to 850p per share and that the offer had to be worth that much on the day the shares were tendered.
“At that point, I thought she wants Cadbury badly and she would be silly to try to be cute over pennies,” said the investor who attended the meeting. “If she lost because of 10 pence it would kill her, but if she overpaid by 10 pence, would anyone really pay that much attention?”
Rosenfeld’s direct dealings with Cadbury mostly involved Carr, whom she telephoned twice in the process to set up the initial and final meetings.
Their first meeting on August 28 was brief, as Rosenfeld devoted 20 minutes to outlining a merger at Carr’s offices at gas supplier Centrica in central London.
Her presentation didn’t go over so well. Carr later publicly dubbed Kraft a “low-growth conglomerate” and urged shareholders to prevent the U.S. food giant from stealing a British institution.
She did not back down. “When Roger and Irene were in the room together they recognized the toughness in each other,” said one source in the Kraft camp. “She respects Roger.”
Rosenfeld already had a reputation as a no-nonsense executive. She once left Kraft when the company passed her up for CEO, only to be invited back. And she took a strong stance in talks with France’s Danone (DANO.PA) in a $7.8 billion deal for its biscuits business.
By the time Rosenfeld, whom Fortune magazine called the second most powerful U.S. businesswoman, met with Carr again this weekend, expectations for a Kraft offer at 900p or higher had dissipated as potential rival bidders dropped out. She had also weathered a stinging public rebuke from Buffett, arguably the world’s most respected investor.
Carr had plenty of experience fending off unwanted takeovers, including bids during his tenure as chairman at Chubb and Mitchells & Butlers (MAB.L). He relented in 2000 as chairman of Thames Water after extracting a high price from German utility RWE.
When the two reconvened on Monday morning at the five-star Lanesborough Hotel in Hyde Park, the tone was amicable and professional, sources close to the discussions said.
Rosenfeld had phoned Carr the day before to offer 830p per share. He refused to budge, telling her he had his board’s backing to insist on “850p or nothing,” but they met a second time on Monday at Cadbury’s old London headquarters in Berkeley Square.
By late Monday night, they had instructed their advisers to hammer out a deal for 840p plus a 10p special dividend to be paid by Cadbury. During the marathon session at Lazard headquarters in London, advisers ordered in Domino’s pizza and bemoaned the lack of bowls brimming with chocolates at Cadbury’s offices.
Carr’s headlining role in Cadbury’s defense developed after CEO Todd Stitzer made comments about potential benefits in a Kraft deal and drew UK Takeover Panel scrutiny after discussing food industry deal valuations at a closed investor conference in September.
After that, Stitzer focused on ensuring Cadbury was beating its own trading goals to shore up investor support for saying the company was worth more.
A former takeover lawyer, the U.S.-born Stitzer had spent his last 26 years at Cadbury and identified so deeply with the candymaker that he was said to “bleed purple,” the color of its shiny wrappings.
“How would you feel if someone came to you, never having met you, indicating that they’d like to buy your favorite thing, but at a knockdown price?” Stitzer said in an interview in December. “And if you didn’t want to agree to it, they said: We don’t really care what you think. We’re just going to put in an offer.”
Sources close to Kraft acknowledged that Rosenfeld took time to strike the right tone.
“She may have ruffled feathers in the beginning. It wasn’t started in a very ‘British’ way and that may have caused some upset at Cadbury,” said one source. “I’m not sure we would have done it differently, but it was done in a very American style.
Adding to the pressure, reports in the Financial Times and the Wall Street Journal said U.S. candy maker Hershey (HSY.N) was drawing up documents for a rival bid just days before Kraft’s deadline on Tuesday. Hershey is expected to bow out now that a friendly deal has been reached.
But while sources close to Hershey told Reuters at the time that no final decision to submit an offer had been made, the reports helped push Cadbury shares higher and caused some consternation in the Kraft camp.
“We never saw Hershey as a viable threat until last week,” said one source close to Kraft. “We weren’t driven or dictated by the Hershey coverage — but we were well aware of it.”
Hershey had holed up in London before Christmas to work on a bid, and those efforts picked up after Buffett’s criticism in early January led the company to believe it could trump a constrained Kraft.
At the same time, Hershey Co and the charitable trust that controls it often acted like “two bosses who don’t agree” throughout the entire process, according to one source.
But Rosenfeld benefited as other potential suitors dropped out of the race, including Switzerland’s Nestle NESN.VX and Italy’s Ferrero. She may have mollified Buffett’s concerns by significantly bumping up the cash portion of the bid, though the Oracle of Omaha has yet to speak about the friendly deal.
If there is one question that lingers over the strategy of the woman who once dreamed of being President of the United States, it is this: Could she have reached a similar deal, for about the same price, nearly five months ago?
“I don’t think one can second guess the process after the fact,” Rosenfeld told Reuters on Tuesday.
Reporting by Jessica Hall, David Jones, Victoria Howley, Brad Dorfman and Quentin Webb; Writing by Michele Gershberg; Editing by Jim Impoco