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� World’s 2nd largest food Beverage Company

� Revenue in 2009 : 40.4 billion USD
� Operations in more than 150 countries
� Top 3 competitors: Nestle, Pepsico & General Mills
� Number of Employees : 100,000
� recently acquired Cadbury (closing pending) at an attractive price
� The transaction will be transformational
� significantly improves Kraft’s business quality and organic growth profile
� Investment thesis
� Attractively priced business standalone…
� …with a transformative event, catalyzing margin
improvement and leading to earnings accretion and multiple re-rating
� “Pro Forma Kraft/Cadbury” (or “PF Kraft”) currently
trades at under 10x 2012 EPS
Recent stock
price: $28
4% dividend
yield
PF Kraft
Market Cap:
~$49bn
Assumes GBP / USD=
1.60 throughout

Cadbury is an Attractive Asset

� The second largest Confectionary Company in the world
� Revenue in 2009 : 8 billion USD
� Top 3 competitors : Hershey’s Mars & Nestle
� Number of employees : 70,000
� Very Strong in Asia Pacific & latin America
� A complimentary global presence
� Knowledge sharing
� Economies of scale & scope
� Good pricing power, very limited private label threat
� Attractive competitive “moat”
� Strong long-term global growth
� Iconic brands (Dentyne, Trident, Cadbury, Halls)

Cadbury is extremely well positioned in emerging markets

Cadbury is extremely well positioned in emerging markets
� >40% of sales in fast growing emerging markets
� Distribution in emerging markets is difficult to Greenfield
� As a 186-year-old UK company, Cadbury has greatly benefited from
UK’s colonial presence in parts of the emerging world

Cadbury is Currently Under-Earning

� Cadbury’s current EBIT margins are only ~13.5%
� Given the mix of categories (chocolate, gum and candy), the
appropriate EBIT margins for CBRY should be in the mid-to-high teens
� CBRY management has invested significantly in the company
� Increased marketing spend and built new R&D facilities
� New plants in low-cost labor countries (only now coming on line) which
should cut enormous waste out of the supply chain
� Developed technologies which have not yet benefited the entire global
portfolio (center-filled gum, candy-layered gum)
� Recently launched core brands in “white spaces” (i.e., Trident in the U.K.)
� These investments are currently pressuring Cadbury margins, but will lead
to margin improvement and strong organic growth
� Kraft should be the beneficiary of these investments, given the timing of its
hostile takeover

Kraft – Cadbury : Hostile takeover takes time

Sept 2009 :
€13bn offer by Kraft Foods

09 Nov 2009
Official Hostile takeover. Kraft price €11.2Bn.

18 Nov, 2009
Hershey & Ferrero Interested by cadbury acquisition

19 Nov, 2009
KKR could make a common offer with Hershey & Ferrero

2 Dec, 2009
Hershy offer could be €13.5Bn

7 Dec,2009
UK Govt will be opposed to a simple financial operation

14 Dec 2009
Cadbury refused the Kraft offer

4th Jan,2010
Hershey hesitation due to risk of increasing the group debt
6th Jan 2010
EU commission agreement

7Th Jan 2010

For the first time share price mkt < Share price Kraft offer

19th Jan, 2010

New offer @€13Bn

2nd Feb, 2010

Cadbury Shareholders accept Kraft bid€

Agreement terms

 Cadbury shareholder offer : 500 pence cash & 0.1874 new Kraft share for each Cadbury share,
 For each Cadbury ADS, shareholders will receive 2,000 pence and 0.7496 new Kraft share,
 Offer equates to 840 pence per Cadbury share and 3,360 pence per Cadbury ADS, based on a
Kraft share price of $29.58(January 15 closing price) and at exchange rate of $1.63 to the pound.
 Cadbury shareholders will get 10 pence per share by way of a special dividend
 Offer values Cadbury at approximately 11.9 billion pounds
 Offer represents a multiple of 13.0 times Cadbury’s underlying 2009 EBITDA
 Kraft to reduce the number of acceptances required from 90 percent to 50 percent plus one
Cadbury share
 Final offer does not require the approval of Kraft shareholders
 Full acceptances will result in the issue of 265 million new Kraft shares, representing 15 percent
of its enlarged share capital
 Cadbury says considers offer fair and reasonable

Once Kraft gains 75 percent of cadbury’s shares, it can delist them. At more than 90 percent, it can force
remaining Cadbury shareholders to sell( Source : www.reuters.com/article/idUSTRE61124D20).

Financing & agreement: $19,55bn deal worth

AGREEMENT

Offer represents a multiple of 13.0 times Cadbury’s underlying 2009 EBITDA

Cadbury Shareolder offer : 500 pence cash & 0.1874 new Kraft share for each Cadbury share

Cadbury shareholders will get 10 pence per share by way of a special dividend

FINANCING

Finance the acquisition consistent with an investment-grade rating

Selling of North America pizza business to Nestle to acquire cash : US$3.7bn

0% of the offer financing by cash

65 million new kraft foods shares

MIXED REACTIONS AFTER AQUISITION

=>The integration of Cadbury is in its infancy, but Kraft's acquisition hasn't hindered the performance of
either company, and together they will go from strength to strength

MULTIBILLIONAIRE WARREN Buffett has slammed the much coveted Kraft – Cadbury deal. Buffet who
is the world's most successful investor and owner of 9.4 per cent of Kraft’s shares has condemned the
£11.9 billion acquisition of Cadbury. He was quoted as saying “It’s a bad deal”.

He also said, if he was given a chance to vote on the deal, he would “vote for a no”.

Shareholders too have written off the deal, which was formed hoping to create world's largest
confectioner with sales of £ 50 billion. The Kraft shareholders have said that 11.9 billion is too hefty an
amount to be paid for Cadbury.

The credit rating agency Fitch has also lowered the credit rating of both firms to reflect the merged
company's huge debt burden.

Some quarters in the media have also raised doubts that Kraft Foods might sacrifice the high quality
standards observed by Cadbury, now that it will have to cut costs to pay of the debt burden.

Cadbury which is famous for its chocolate and milk products had adhered to high business ethics
throughout its operations. Now all eyes are set on the merged company whether Kraft will continue to buy
cocoa beans from its farmer-led cooperatives stand.

Buffett commenting on the decision taken by Kraft boss Irene Rosenfeld, told media that in his eyes it’s a
loss-making deal.

Kraft foods who battled for 4 months to win the Cadbury board's nod finally achieved the feat on Tuesday
after agreeing to pay more cash and fewer Kraft shares than had previously been offered in the
shareholder package.

Buffett has also slammed Kraft's decision to sell its pizza business to Nestlé – a move taken to raise funds
for the Cadbury deal. "I feel poorer," he said. Kraft's shares fell more than 2 per cent on the bourses as
the news broke of the raised debt burden on the company.

“A total of 120 out of 170 managers and executives have quit since Kraft took control of the 200-year-old
company in February after a bitterly fought £11.5billion takeover battle!”

POST MERGER SCENERIO

Sales of CDM were up 12.8%, increasing its share by 60bps, and Cadbury's overall chocolate confectionery
business grew by 5%. Although Kraft's chocolate sales, up 7.5%, rose faster in percentage terms [Nielsen
MAT 52w/e 30 October], this was the result of increased distribution that was planned prior to the
Cadbury acquisition, said Bunker. "Milka is a bigger brand in Europe than Cadbury, but over here is around
£16m, whereas Cadbury is over £400m. Milka also has a different taste profile. There's definitely an
opportunity for co-existence."

The two sales forces would continue to operate independently until next year when they are able to
operate on the same sales platform, although Cadbury sales director Dave Pogson is now also responsible
for the Kraft confectionery sales team, but the early signs of integration between the two companies is
encouraging.

A very detailed cross-fertilisation of ideas between Kraft and Cadbury" would result in an extra £1bn
sales by 2013. "Clearly the focus is on growing the business."

New investment and NPD plans in Kraft's existing divisions. A new premium instant coffee to rival
Starbucks Via, called Kenco Millicano (The Grocer, 27 November), will launch in silver tins next February.
The rsp yet to be confirmed.

Kenco also plans to spend £15.8m on new packaging facilities at its Banbury coffee HQ to support the
astonishing success of Kenco's refill packs. In the 12 months since the eco-friendly format launched, 11%
of consumers had purchased a pack, and it already accounted for 25% of Kenco sales. Currently outsourced
to a packing facility in France, the investment would boost production and save money.

Emerging Stronger

Emerging markets have underpinned both Cadbury's and Kraft's growth strategies for a number of years.
Today, developing countries account for 38% of Cadbury's US$8.3 billion group sales and 20% of Kraft's
US$40 billion in sales, according to London-based research firm Euromonitor International. In most of
those key markets, Kraft dwarves Cadbury -- 2008 revenue in Brazil, for example, totaled US$1.2 billion
against Cadbury's US$400 million; in China, its turnover was US$400 million compared with the U.K. firm's
US$50 million, and in Russia, US$800 million compared with US$200 million.

Yet India is one country where Kraft will be leaning heavily on Cadbury. Since setting up in India more than
60 years ago, Cadbury is the largest confectioner in the country, with Nestlé a distant number two.
Cadbury brands such as Dairy Milk, 5 Star, Perk, Eclairs and malted milk additive Bournvita have helped it
command some 70% of India's US$425 million chocolate market, and 30% of the US$1 billion sugar boiled
confectionery category, according to marketing research firm ACNielsen.

However, market share is not the only gain for the U.S. multinational. "Cadbury's distribution network will
be invaluable for Kraft," says Sridhar Samu, professor of marketing at Hyderabad-based Indian School of
Business (ISB). Today, a network of 1.2 million shops sells its products across India -- no small feat in a
country with highly fragmented supply chains. "It's a marriage made in heaven as far as the distribution is
concerned," Sanjay Khosla, Kraft's president of developing markets, told The Economic Times during a
recent visit to Mumbai.

'Generations Behind'

Indian consumers aren't always quick to embrace Western products, and getting accepted can take "over a
generation."while the Indian market may look attractive in terms of size and spending power, "the buying
and consumption pattern has not changed significantly over the years." A case in point: Despite the growing
presence of supermarkets and hypermarkets in India, 98% of food is still purchased from the 12 million
neighborhood mom-and-pop outfits called kirana stores. If nothing else, that makes distribution extremely
difficult.

Also, because India is still a very agrarian society, Sumit Chandna, Mumbai-based head of fast-moving
consumer goods (FMCG) at Aditya Birla Retail's MORE supermarkets and hypermarkets, says Kraft could
face an enormous challenge getting its food products on to supermarket shelves. "The whole processed
food category is fairly nascent," he explains, noting that the largest FMCG company in the country is the
personal and home care division of Unilever. "We are generations behind when it comes to food," says
Chandna.

That could partly explain why growth has been relatively slow for Cadbury. Other reasons include the
company's narrow confectionery product range. Over the years, the Cadbury has tried to expand its
repertoire in India, launching, for example, the country's first apple drink, Apella, and Dollops ice cream
and cookies. Yet the purple wrapping of its chocolate bars is still what Indian consumers associate the
Cadbury brand with. Being under the Kraft umbrella, however, will broaden that range to include cheese,
Oreo cookies, more chocolates like Toblerone and Milka, and beverages such as Tang, Kool Aid and Maxwell
House coffee.

With the help of markets like India, Hrebiniak says Cadbury worldwide will need to step up the pace over
the next few years "to justify its purchase price." Kraft, he notes, will want to see the top line at Cadbury
growing globally around 10% and Ebitda (earnings before interest, taxes, depreciation and amortization)
margins at 27% over the next four or five years to justify the premium Kraft is paying. "Historically,
Cadbury has been a little short of that, approximately 5% and 20% respectively."

Survival Tactics

Regardless of the new diversity of its portfolio, the old challenges of India's confectionery market will
remain. Consider the low unit price of many candies, which range from half a cent to 15 cents. Given the low
prices, a chocolate maker can hit volume targets relatively easily and can regularly roll out new candiesto
keep consumers enticed -- in 2009 alone, there were more than 70 launches. However, the survival rate is
extremely low. According to marketing experts, less than 10% of these new brands survive beyond their
first year. What's more, the low barriers to entry attract many fly-by-night manufacturers and have also
left the market enormously fragmented, to the consternation of many Western players like Unilever.
After just four years, the Anglo-Dutch firm withdrew its Max candy range in 2005, apparently
disappointed that it only had 5% of market share. "The costs didn't justify the volumes," says a Unilever
manager.

To get a foothold in India, innovation is critical, as other confectioners in the country confirm. A case in
point: Perfetti Van Melle (PVM), a privately held Italian-Dutch firm, which owns Chupa Chups lollypops and
Mentos mints. Having entered India in 1994 and set up three factories in various parts of the country,
PVM has a 25% share of the confectionery market today. The company's success, say experts, is due to its
innovative products -- it was the first company to launch center-filled gums and candies in India -- at the
right price points. "The innovation helped us price the products at 100% premium to the competition," says
Sameer Suneja, the New Delhi-based managing director of PVM.
The company has been innovative in other ways, including sales and distribution. During its early years in
India, PVMsent its entire range of products to retailers throughout the country, but "we soon realized
that retailers operate on a daily working capital basis and choose only fast-moving products," Suneja notes.
So it segmented its sales teamalong product lines -- chocolate, gum and mints -- and the speed at which
the products were sold, tailoring their sales efforts accordingly to increase supply chain efficiency.

But pricing and distribution are not the only hurdles for Western chocolate makers. While there is still
huge growth potential -- Cadbury estimates that per capita consumption of chocolate in India is 54 grams,
compared with 11 kilograms in the U.K. -- India has its own formidable confectionery industry. For sure,
Cadbury and the raft of other Western confectioners in India are competing not only with each other, but
also with the ubiquitous assortment of traditional milk-made Indian sweets, or mithai, consumed at home
and on special occasions. "Indians have a massive sweet tooth, but it's fulfilled by mithai, not chocolates,"
says Ramesh Srinivas, executive director of KPMG Advisory Services India, who oversees the consumer
business practice.

Even mighty multinationals like Cadbury have been unable to crack that market. According to a former
marketing head at the company, "We always grappled with the question of how to take on mithai." Some
years ago, he says, Cadbury worked with local brand Amul, which is owned by a dairy cooperative in Anand
in the western state of Gujarat, to make mithai to add to its chocolate. But the Indian-Western medley
ultimately failed to excite consumers.

Snack Attack

The good news is that India is a snacking haven, with every state having its own vast array of sweet and
savory treats. "The snacking market is driven by unorganized players, leaving enough room for established
companies to grow," says Vijay Chugh, vice president of research at Mumbai-based Ambit Capital.

Kraft is hoping to make the most of that opportunity. The American food giant entered India in 2003 in a
joint venture with Chennai-based Kothari Group to manufacture Tang, its powdered orange drink. The
launch of the premium-priced drink mix coincided with the introduction of 10-cent 200 milliliter bottles by
U.S. soft drink manufacturers Coca-Cola and PepsiCo. With Tang making little headway in a price-conscious
market, Kraft beat a hasty retreat a year later.

Even so, Kraft is a known brand name in India: Products like Kraft cheese and Toblerone chocolate are
imported and prominently displayed on shelves in many of India's new supermarkets and hypermarkets.
"Kraft's portfolio is what I call 'higher order' products," says Aditya Birla's Chandna.

Now, with the Cadbury acquisition sealed, "Kraft's success will require a lot of brand-building activities to
position [other] brands among Indian consumers," says ISB's Samu. Pivotal to Kraft's success in India will
be its ability to forge an "adapt-and-adopt" strategy, says Chandna. "It needs to be very selective [about]
which products in its portfolio it wants to sell and has to know what the local market is ready for. The key
is not where to introduce its products, but what to introduce." Kraft's Khosla echoed this approach during
his Mumbai visit. It's "about being 'glocal' [that is, both global and local]," he said. "We are now
empowering local leaders and listening to local consumers."
In that respect, Kraft might want to take a leaf from PepsiCo's book. With a 20-year track record in the
country, the US$43 billion snack food and beverage multinational is now one of the largest consumer
products companies in India. Its flagship India brand -- Frito Lay's Kurkure snack -- was created
specifically for the Indian palate. Kurkure flavors include "masala munch," "green chutney Rajasthani
style," and "xtreme risky chili," and three years ago, a special edition flavor -- "jaljhalo hit" -- was
launched during the traditional puja festival in the eastern state of Bengal. On the back of Kurkure's
success, Frito-Lay India launched Aliva crackers, which are made with local spices, wheat and other
ingredients, in June last year. As Cadbury's former marketing executive notes, "We need to see if Sanjay
Khosla can do for Kraft what [PepsiCo CEO] Indra Nooyi did for Pepsi India."

Perhaps because of its earlier experience in India, Kraft has been busy honing its "localization" skills in
other emerging markets. Sometimes, it has been a matter of trial and error. In China, for instance, after
it launched the American version of its Oreo cookies, sales were flat initially. Research showed that both
the product and price were problems: The cookies were too sweet for the Chinese palate, and the 72-cent
pack was considered too expensive. Kraft then developed less sweet Oreos in smaller packs costing 29
cents. Also, a new Oreo variant was launched soon after. The four-layered Chinese Oreo -- with vanilla and
chocolate cream coated in chocolate -- soon became the best-selling biscuit in China, racing ahead of the
original Oreos.

However, Cadbury India has been slower to tailor its products to Indian tastes. "Cadbury never thought of
localizing its products until recently," notes Srinivas of KPMG. But it has been making up for lost time. In
the last year, Cadbury has been changing recipes to improve the shelf life of some of its chocolate bars.
For example, mini-packs of Dairy Milk are now made to withstand India's heat -- which is useful in a
country with many retailers who do not have refrigeration units and who have to contend with regular
power outages -- and are sold in packs costing 4 cents, compared with nearly 50 cents earlier. Distributors
say that the strategy has not only helped Cadbury increase chocolate penetration, but consumers are also
buying more.