Cadbury failed to demonstrate intrinsic value of brands
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A more detailed breakdown of the value of each Cadbury brand could have saved the company from a takeover by Kraft, consultancy Brand Finance and the Institute of Practitioners (IPA) have revealed.
According to an analysis by Brand Finance and the IPA, the Cadbury brand portfolio alone is worth about £3.2bn - more than a quarter of the total £11.6bn the confectioner is to be sold for.
The consultancy argues that had this information been published widely, it could have made a difference to the value of the eventual sale. The deal instead focused on fixed assets, estimated to be worth £1.7bn and receivables worth £923m, among other costs that are published by the brand in annual balance sheets.
In September, when Kraft first submitted its bid, Brand Finance told Marketing Week it estimated that Cadbury’s brand value would be £2.3bn before a takeover was completed, based on analyst forecasts. Cadbury’s numerous defences and revised forecasts have helped to increase its value, though this has not been reflected in the accepted takeover bid.
IPA director general Hamish Pringle says: “The Cadbury brand clearly has huge brand equity and brand value, which went entirely unreported in the Cadbury plc balance sheet. The question is whether more detailed reporting of intangible asset values - particularly brands - in its annual reports would have saved Cadbury from takeover. I believe it could have helped to avoid the original opportunistic bid by Kraft.”
Kraft executive vice-president of strategy Michael Osanloo says it will not “harm the history of Cadbury and the integrity of the brands…we will be much more aggressive about investing in marketing and advertising at Cadbury.”
Readers' comments (8)
Anonymous | Wed, 27 Jan 2010 9:30 am
I'm sorry but Cabury didn't have to sell. The reality this is straight forward supply and demand. No one else was willing to pay close to the price Kraft was offering and I think for good reason. How much according to the Brand Value would do you think the price should have been?
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Newbrandtribalism | Wed, 27 Jan 2010 10:08 am
If the Cadbury / Kraft union works out anywhere near as well as other noted overseas pillories of the Great British Brand such as Asda, Mini or Orange – that brand heritage might end up in the hands of someone who actually appreciates the brand more. Or....It could go down the way of Liverpool FC. We're watching with interest.
http://www.newbrandtribalism.com/blog/
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Richard Knight Systematic Strategy Ltd | Wed, 27 Jan 2010 12:01 pm
It is not only assets that Kraft will be acquiring, but plenty of liabilities too, including pensions. Focusing on the brand value alone when calculating whether or not the Kraft is paying a fair value is myopic.
As we all know, to calculate the value of an intangible asset such as a brand is very difficult. The value of a brand to shareholders could vary substantially to the value attributed to it by a rival company or a company wishing to enter the market.
It is very dangerous to provide discounted cashflow projections and say that is what the brand value is. Numbers suggest precision, yet without knowing the context of the valuation could be wildly inaccurate.
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Jen | Wed, 27 Jan 2010 12:12 pm
Reminds me of this quote from the former Chairman of Quaker Oats that illustrates the value of brand over assets:
'If this business were to be split up, I would be glad to take the brands, trademarks and goodwill and you could have all the bricks and mortar - and I would fare better than you.'
I don't understand why knowing the value of the brands would have saved them from takeover though? Seems like Kraft have offered much more money than the assets+brands are worth monetarily?
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Anonymous | Wed, 27 Jan 2010 1:37 pm
Isn't Orange French?
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Bill Cross Broad Street Licensing Group | Thu, 28 Jan 2010 0:15 am
Me thinks the British press hath protested too much!
It's candy, folks, hello! Cadbury's brands aren't even premium quality for the most part. The notion that they represent something with deep national value or they were undervalued is bunk. Something is worth what someone else is willing to pay for it. If Cadbury were worth that much, why didn't Hershey or Nestle outbid Kraft?
It's a smart move by Kraft who is more interested in the Cadbury distribution networks in emerging world markets than what chocolates the company sells in the UK.
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Cath | Mon, 1 Feb 2010 2:57 pm
To address Bill Cross - I've tasted what passes for 'chocolate' in the US and compared to anything Hershey etc. put out Cadbury's is definitely the premium choice.
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Anonymous | Wed, 3 Feb 2010 5:11 pm
Cath, you've obviously never tried Reece's.
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