Saturday, April 10, 2010

Dear shareholders and employees of Kraft Foods,

Now that we have discussed the benefits this acquisition might bring, it is important to consider the adverse outcomes this deal might produce. After the valuation of Cadbury, we have determined a very high leverage which significantly reduces the value of the acquisition and the possibilities for future growth. One of the biggest mistakes made by Cadbury management was excessive debt financing and leverage accumulation that hurts shareholders. Inevitably Kraft, by taking over a highly-leveraged company, will seek bankruptcy protection due to insufficient funds inflow; the only way to circumvent this may be to strategize a debt repayment program and forecast future cash flows. We are all aware of the fact the Warren Buffett, as the largest shareholder and a value investor, is skeptical of this deal, because Cadbury stock has proven to be a growth stock over the years. His investing strategy is widely known s effective, thus factoring in the opinions of financial giants, such as Mr. Buffett, would be prudent. In addition, we believe that management of Cadbury has unfairly valued their firm at 15x multiple, which is much higher than the actual market value. None of the shareholders would like to leave money on the table, knowing that the fair market value is four billion dollars below the ask price.

We are facing a high volatility project which has required us to proceed with very careful examination of long-term benefits. We, the board of directors at Kraft, all acknowledge the fact that the greater risk we face may generate higher return; however our shareholders may not share our approach for risk. All things considered, it would be in the best interest of Kraft to hold off on this deal because the disadvantages are greatly outweighed by the benefits to be gleaned by said endeavor.


Alexander Tyan (Sasha)

VP of Finance

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