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Kraft: Cadbury Acquisition to Deliver $1 Billion in Synergies

Kraft Foods says it expects the combination of the company and Cadbury to deliver $1 billion in incremental revenue synergies on top of $750 million in cost synergies by 2013.
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(Story updated with analyst commentary and latest share prices)
NEW YORK (TheStreet) -- Kraft Foods (KFT) has announced that it expects the combination of Kraft and Cadbury to deliver $1 billion in incremental revenue synergies on top of $750 million in cost synergies by 2013.

As the companies merge, Kraft said that by 2013 the proportion of its business in developing markets will increase from a quarter of total revenue to roughly one-third. The company made the announcement ahead of an analyst conference in New York.

"This combination of factors gives us great confidence that our company will generate organic revenue growth of 5% or more, margins in the mid- to high-teens and EPS growth of 9% to 11%," Kraft CFO Tim McLevish said in a statement.

"Delivering on these commitments will make Kraft Foods a sustainable top-tier performer in the global food industry."

Currently more than half of Kraft's revenue comes from markets outside of North America, such as Brazil, China, India and Mexico, where GDP and demand growth are strongest, the company said.

This "unique and complementary combination" of Kraft and Cadbury "together with our significant presence in high-growth developing markets, will deliver consistent growth in the top tier of our peer group," Kraft CEO Irene Rosenfeld said in a written statement.

Shares of Kraft stock are up 1.5% to $31.52 in Wednesday afternoon trading.

S&P has reiterated its hold opinion on shares of Kraft while raising its12-month price target to $32 from $30. "We see growth strategy from Kraft including an emphasis on revenue synergies from the recent Cadbury acquisition," S&P analyst Tom Graves told clients in an investor note. "Also, we look for Kraft's presence in snack food market to be a significant revenue growth driver, and we expect productivity gains to help gross margins."

Graves believes the acquisition of Cadbury boosts Kraft's presence in developing international markets.

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-- Written by Andrea Tse in New York.

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