Kraft’s Cadbury Bid Tests Chief Rosenfeld’s Persuasion Powers
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By Susan Berfield and Michael Arndt
Jan. 15 (Bloomberg) -- Irene Rosenfeld hasn’t been around Kraft Foods Inc.’s suburban Chicago headquarters much lately. The door to her wood-paneled office is kept closed. Her desk is bare. Rosenfeld has grabbed her leather folders of meticulously compiled research and is traveling to London and around the U.S. in Kraft’s Gulfstream jet.
These trips weren’t supposed to be urgent or secretive. They’ve become both as Rosenfeld works to reassure shareholders that her about $17 billion hostile bid to buy U.K. candy maker Cadbury Plc will be good for them. She has until Jan. 19 to make a final offer, and until Feb. 2 to get a majority of acceptances from Cadbury shareholders. Rosenfeld, 56, has led Kraft since 2006 and has worked there for almost her entire professional career.
She can be pretty persuasive, John Bowlin, who ran Kraft North America in the mid-1990s, says in the Jan. 25 issue of Bloomberg BusinessWeek magazine. Early on in her career, she told her bosses that commercials for Kool-Aid should be aimed at kids, not mothers, and that Jell-O could be made modern with new flavors, according to Carol Herman, who worked on Kraft accounts at advertising firm Grey in the 1980s and 1990s and is a close friend of Rosenfeld’s. In the late 1990s, Rosenfeld turned around Kraft’s business in Canada; the first thing she had to do was to show skeptical colleagues that an American could understand Canadian consumers, Herman said.
“When she is trying to persuade you of something, she will be relentless in coming back with facts and showing you she has the support of other people,” Bowlin said. “She will be totally emotionally and intellectually committed to her idea.”
Powers of Persuasion
Rosenfeld must summon all of her powers of persuasion as she takes on her biggest marketing challenge yet: selling the Cadbury deal to shareholders. Her task is all the more difficult because she has alienated Northfield, Illinois-based Kraft’s biggest shareholder, billionaire investor Warren Buffett.
Rosenfeld told investors on Dec. 18 she planned to issue new stock to help pay for the purchase. Buffett, 79, objected to the plan in a Jan. 5 press release and urged Kraft not to overpay by using too many of its own shares. Rosenfeld and Buffett declined to comment through spokespeople.
Win or lose, the Cadbury affair “will be defining for her career,” says former Kraft Chief Executive Officer Robert S. Morrison.
Kraft is the world’s No. 2 food company after Nestle SA, selling $42 billion worth of Kraft Macaroni & Cheese, Oreos, Oscar Mayer cold cuts, and hundreds of other brands each year. It is the product of two decades of deal-making. Philip Morris International, seeking to broaden its reach beyond cigarettes, bought General Foods, the owner of Jell-O, Minute Rice, and Kool-Aid, in 1985, succeeded in a hostile takeover of Kraft in 1988, merged the companies by 1995, and bought Nabisco five years later.
General Foods
Rosenfeld got her start in market research at General Foods, which was based in Westchester County, New York, in 1981. She had spent most of the previous decade at Cornell University, completing an undergraduate degree in psychology, a master’s degree in business administration and a doctorate in marketing and statistics. Her thesis adviser, Vithala Rao, recalls that even though Rosenfeld was working and pregnant, she was determined to finish her dissertation on how consumers make decisions about purchases.
“She knew a Ph.D would give her an edge in the business world,” says Rao. “And her husband was getting one. They were a little competitive.”
When Rosenfeld presented her bosses at General Foods with research showing that Kool-Aid should be marketed directly to kids, the pitch won her a job working on the brand full-time.
First Meeting
After a presentation at one of her first meetings with Grey, Rosenfeld was so excited that she applauded. Back then, junior employees were expected to stay silent, according to Herman, the former Grey executive.
“We were all so shocked and amused by her reaction,” says Herman.
Rosenfeld came up through the ranks at General Foods and Kraft -- eventually overseeing the Nabisco integration and serving as president of Kraft North America. She would call people with ideas, however big or small, late into the night, according to Herman.
“I can’t tell you how many midnight talks we had about Minute Rice and Stove Top stuffing,” Herman says.
“Irene didn’t need a lot of advice. That’s why I liked her. She was giving me the right answers,” says James Kilts, a former Kraft president who later ran Gillette.
In 2001, Betsy Holden was appointed co-chief executive alongside Roger Deromedi. Rosenfeld stayed on almost two more years, then left to join Frito-Lay, a Kraft rival.
‘Fearless’ Executive
“Irene thought about the marketing agenda and innovation much more aggressively” than the company was used to, says Indra Nooyi, the CEO of Purchase, New York-based PepsiCo Inc., which owns Frito-Lay. “She was fearless in what she did.”
When Kraft asked Rosenfeld to return as CEO in June 2006, she agreed. Kraft was faltering amid high commodity prices, increasing competition from private labels, and its focus on cost-cutting. She told Kraft’s almost 100,000 employees that the company had lost its heart and soul and needed to “rewire for growth.”
In a speech at Cornell in 2007, Rosenfeld described her return to Kraft.
“The staff was tired, raw, disillusioned,” she told the audience. “My slogan was, ‘let’s get growing.’ It’s not a warm and fuzzy strategy.”
‘Should we?’
She replaced half of her executive team and half of those in the next two levels down. She reorganized the structure of the company, changed how people receive their bonuses, and told everyone “to stop apologizing for our categories and make them more relevant.” She concluded her talk: “Sometimes I lie awake thinking, ‘Should we?’ And then I think, ‘How can we not?’”
When billionaire investor Nelson Peltz pushed her to sell some brands, she did, unloading Veryfine fruit juice and Post cereals, according to reports at that time. When she asked him not to purchase more than 10 percent of the company, he agreed.
Peltz was also an investor in Cadbury Schweppes, and he persuaded the U.K. food company to sell its soft drink division in 2008 and focus on its candy business. That would set the stage for Rosenfeld’s takeover bid and provide Cadbury its defense: It didn’t want to lose its focus by becoming part of a large company.
Even though consumers ate at home more often during the global recession and ingredient prices fell, Kraft was forced to cut prices to compete with private label products.
Kraft Stock
Kraft stock, sold to the public at $31 a share in 2001, fell as low as $21 last March. It has traded at an average of almost $29 this year.
The company introduced items such as Bagel-fuls, bagels stuffed with Philadelphia cream cheese, and created premium toppings for Kraft’s DiGiorno frozen pizza.
Rosenfeld also began studying the possibility of buying Cadbury, which sells Trident gum and chocolate in 60 countries.
“She wanted to capture the imagination of the world about what Kraft could be,” says Shelly Lazarus, chairman of advertising agency Ogilvy & Mather Worldwide, which works with Kraft.
On Aug. 28 Rosenfeld met with Cadbury Chairman Roger Carr in London to lay out her plan.
‘Brisk, Efficient’
“She was brisk, efficient, delivered her proposal and left quite quickly,” says Carr. The two haven’t spoken since, he says.
They have exchanged a few letters. In the first, which Carr sent to Rosenfeld the next week, he called the offer “derisory.” On Sept. 7, Rosenfeld announced Kraft’s bid in a news release on the corporate Web site, to try to win over shareholders directly. She spoke to several U.K. newspapers about her admiration for Cadbury and the great promise of a merger.
“I am a heavy, heavy user of Trident gum and, on a seasonal basis, I love those Cadbury eggs,” she said in a video interview posted on the Kraft site.
Rosenfeld made a hostile bid on Nov. 9.
“Our proposal offers the best immediate and long-term value for Cadbury’s shareholders and for the company itself compared with any other option currently available, including Cadbury remaining independent,” she wrote in the formal offer.
Pizza Deal
She was also juggling another deal that would determine how much Kraft could spend for Cadbury. In early 2009, Vevey, Switzerland-based Nestle expressed interest in buying DiGiorno and the rest of Kraft’s pizza business, according to Michael Mitchell, a Kraft spokesman. Rosenfeld concluded that selling the unit made sense: Frozen pizza wouldn’t do well outside of North America, and within the company it was an isolated brand. Next, she had to persuade the board.
“It was a difficult decision. But once we got our heads around the strategic and financial rationale for the deal, it became clear,” says Perry Yeatman, a Kraft spokeswoman.
On Jan. 5, Kraft said it would sell the pizza business to Nestle for $3.7 billion. The deal would give Rosenfeld the cash she’d need to pursue Cadbury. There was another benefit: Nestle, Kraft’s main rival for Cadbury, said it wouldn’t bid.
Warren Buffett
On the same day, Buffett went public with his concerns, calling Rosenfeld’s proposal to issue more shares a “blank check.” He said that while the company had bought back shares at a price of $33 a piece in 2007, it would be selling the new shares for the Cadbury transaction for far less. He also said he would support an offer that “does not destroy value for Kraft shareholders.”
“What is she wasting our money for?” says John Kornitzer, founder of Kornitzer Capital Management in Shawnee Mission, Kansas. “To chase after these guys is ridiculous.”
Alice Schroeder, a former Wall Street analyst and author of a biography of Buffett who also writes a column for Bloomberg News, says that even if Rosenfeld had consulted with Buffett, it might serve his purposes to take a public stand. He can take credit for reining her in and defending shareholders, she says.
“No matter how this turns out, Warren looks great,” she says.
On Jan. 12, Carr released a “defense document” on Uxbridge, England-based Cadbury’s Web site, saying “the bid is even more unattractive today than it was when Kraft made its formal offer.” Kraft called the argument “underwhelming.”
Kraft Shareholders
“The clarity with which we reviewed Kraft’s own record must have been disturbing for them and illuminating for our shareholders.” Carr said.
Kraft shareholders will vote on whether to issue more stock on Feb. 1; the next day Cadbury stockholders will vote on the offer. Rosenfeld spent Jan. 12 with Cadbury investors in the U.S. before jetting to London to talk with Cadbury shareholders there. Some refused her visit, says Carr. While Rosenfeld remains determined to make Kraft bigger and more global, finding a price for Cadbury that works for everyone might be impossible.
“Rosenfeld has made it clear that she’s disciplined, that she won’t overpay,” says Donald Yacktman, president of Yacktman Asset Management, a longtime investor. “I guess we’ll find out how much she really means what she says.”
To contact the reporters on this story: Susan Berfield in New York at 212.512.3410 or susan_berfield@businessweek.com; Michael Arndt in Chicago at Michael_arndt@businessweek.com.
Last Updated: January 15, 2010 09:29 EST
