Delicious moments of investor JOY

We’re one of the most heavily leveraged food companies in the world – read more to find out how we pulled it off.

Maximum leverage, minimum transparency

Kraft assumed enormous debt to acquire Lu and Cadbury on the road to becoming a ‘global snacks powerhouse’ called Mondelēz. For nearly one year, following the announcement that the former Kraft Foods Inc. would split into two companies, a North American grocery company and a portfolio of global snack foods, Kraft strongly hinted that the debt would be loaded onto the new North American company. Only on October 5, 2012, after shares in the new company had been publicly trading for a full week, did Kraft disclose any information on the capital structure of the new company in the form of an “Unaudited Pro Forma Consolidated Financial Information and Accompanying Notes” for Mondelēz International, Inc. filed with the US Securities and Exchange Commission. That filing shows long term debt of USD 22.09 billion with total equity of USD 25.29 billion – a debt-to-equity ratio of 87.3%.

On December 19, Mondelēz gifted CEO Rosenfeld with a “special equity award” of USD 10 million in stock –
as head of a company which had been in existence less than 3 months! This came on top of Rosenfeld’s 2011 USD 22 million total compensation package.

If Mondelēz’ capital structure resembles a highly leveraged private equity buyout, it comes as no surprise. To split Mondelēz and Kraft, Kraft brought in financial wizard John Cahill from the private equity fund Ripplewood Holdings LLC, described by the Financial Times as “one of the most secretive” private equity firms. Ripplewood, has a long and distinguished record of ruining companies, including food companies, by loading them with debt.

In 1999, for example, Ripplewood purchased the profitable Arkasas-based Meyer‟s Bakeries for USD 73.1 million. At the time of the purchase, the company had annual sales of USD 90 million and a healthy balance sheet. To fund the purchase, the company’s entire assets were pledged as collateral for a USD 45 million bank loan. Another USD 10 million was borrowed from another investment fund, also using the company‟s assets as collateral.

The company filed for bankruptcy in early 2004, listing $44.2 million in assets and $48.7 million in debt. The investor lawsuit filed in response to the debt-driven bankruptcy that year was a classic indictment of leveraged buyout-induced failure: "The short-term focus of the Ripplewood directors on resale of the company excluded attention to critical research and development, maintenance and operations issues."

Long criticized for being stodgy and ‘boring’ despite its market leader position in a number of categories, Kraft has “reimagined” its management model by cutting loose the grocery business which funded its global expansion, piling on debt and vacuuming out cash, and it has brought in the management team to do the job.

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April 2013
March 2013

The International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers' Associations (IUF)