10

Mergers and Acquisitions in

the Consumer Goods Sector

Introduction

Consumer goods companies are using M&A as a strategy to expand

global reach, enter new markets and consolidate the focus on their core
brands. Acquisitions are also used to vertically integrate and optimize
supply chain operations. Acquisitions in the sector are also meant for
securing critical resources or proprietary technologies in certain prod-
uct categories. In the context of post-economic crisis, companies in the
food, drink, consumer goods and retail sectors are actively involved in
M&A activity, especially in developing nations. Pepsi and Nestlé have
made nine and seven acquisitions respectively in developing nations
during the period 2006–2010. In developing markets like India, China
and Russia, M&A deals are driven by the consolidation of smaller
companies.
After the implementation of the NAFTA and GATT agreements, many
companies in the food and beverages industry have focused on M&A.
These mergers have been for enhancing the advantage of existing dis-
tribution systems or underutilized plant capacity. During the period
2005–2007, approximately 125 mergers and acquisitions took place in
the snack food industry.
Post-2008, the sector witnessed increased M&A activity on account of
the need to access a broader customer base, leverage economies of scale
and create stronger brand awareness. The availability of private equity
capital and corporate cash along with the loosening of lending stand-
ards are emerging as catalysts for M&A activity. In 2010, the top ten
food and beverages companies collectively held $30.1 billion in cash
balances which was an increase of 15 percent compared to 2006.

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B. R. Kumar, Mega Mergers and Acquisitions

© B. Rajesh Kumar 2012
216 Mega Mergers and Acquisitions

According to the E&Y Consumer Report 2010, M&A in the global

consumer goods industry stood at $101.6 billion in 2010 compared to
$45.7 billion in 2009.
In one of the largest deals, in 2010, KKR/Vestar Capital Group and
Centerview Group acquired Del Monte Foods for $53 billion. In 2008,
the consumer services industry announced 774 M&A deals. In 2009, the
number of deals fell to 582, while in 2010, the number of announced deals
was 786. In 2011, Kraft acquired UK confectioner Cadbury for $19.6 billion.
In 2010, both Coca-Cola and PepsiCo. acquired significant portions
of their bottling operations in order to reduce their structural costs and
enhance the facilities for the testing, launching and scaling of new prod-
ucts. The Coca-Cola Company paid $12.3 billion for Coca-Cola enter-
prises, while PepsiCo. paid $14.8 billion to acquire Pepsi Bottling Group
and Pepsi Americas. In another large deal Kraft acquired Cadbury for
$19.6 billion to gain access to new geographic markets and capitalize on
synergies associated with complementary product portfolios. The deal

Table 10.1 Major M&As in the consumer goods industry

Acquirer Target Amount in billions

2006 Procter & Gamble Gillette $57

2008 InBev Anheuser Busch $52
1989 KKR RJR Nabisco $25
2007 Groupe Danone Royal Numico £12.3
2000 Unilever Bestfoods $20.3
2010 Kraft Foods Cadbury $19.6
1988 Philip Morris Kraft $12.9
2008 Heineken Scottish & Newcastle $15.3
(S&N)
2006 Cerberus Albertson $17.4
2005 Goal Acquisitions Allied Domecq $14.4
2010 Coca-Cola Coca-Cola Enterprises $12.2
2008 Altria UST Inc. $10.4
2000 Diageo Pernod Ricard Seagram Spirits and $8.15
Wines
2009 PepsiCo Inc. Pepsi Bottling Group, $7.8
Pepsi Americas
2008 Pernod Ricard Vin & Spirit (V&S) £5.7
2007 Kraft Foods Groupe Danone $7.6
2007 Nestlé Gerber (Novartis) $5.5
2007 Coca-Cola Energy Brands $4.10
2002 SAB Miller $3.48
2005 SAB Miller Coors $3.4
2008 Smucker’s Folgers (Kraft Foods) $2.95