January
7
Real life meets Digital: World of War(K)raft playing now!
I don’t know if anyone out there believes in New Year resolutions anymore, but for what its worth, here’s mine. KEEP THE BLOG ALIVE.
You will hear from me and the InvesGuard team more regularly. We have been busy with new features and new companies to analyze and we cannot wait to share all our companies that we have been busy researching, with you.
Spiling over from last year, is the continuing Kraft- Cadbury war.
Starting the New Year on a more persuasive note, Kraft increased the cash portion of its offer for Cadbury. After an unexpected reaction to this news from Berkshire Hathway, which warned Kraft against a ‘blank check’ on the deal, Kraft shares crept higher thus increasing the effective value of the bid reducing the difference between Cadbury’s share price and the offer price.
A detailed time line of the entire episode can be viewed on WSJ’s website here.
To add to all that’s already been analyzed and reported, InvesGuard has performed its own independent screening under its proprietory data model.
Kraft scores well on its Board of Directors and Senior Management. Its Internal Control Environment under InvesGuard’s model also scores high. Unfortunately, despite having a Board level committee to oversee all matters related to the company’s social and environmental programs, one would expect better reporting and well established environmental and social processes in place. In fact what we analyzed indicated inadequate publicly available information on Kraft’s efforts at encouraging minority and diverse suppliers. For instance, it would have been helpful to report the actual percentage of the company’s spend on such suppliers versus the total vendor spend. The company is also in the process of including different corporate responsibility elements (including those that address child labor) in its supplier contracts. Kraft expects this process to take ‘several years’.
Although it has scored relatively well on its Board of Directors and Senior Management, other processes in this area could use a little improvement. For instance, it does not appear that Kraft’s Governance Principles limit the amount of public company director positions that directors may hold. Consequently, few Kraft directors including some Audit Committee members were found to be on the boards of multiple public company boards. Serving on multiple company boards may reduce the amount and quality of time available to directors. Some directors are also CEO’s of other public companies which may contribute to overstretching directors. Other weaknesses in Kraft’s Board and Senior management may be found by looking up the Board of Directors and Senior Management tab under the Kraft analysis page. Don’t forget to click on the ‘Expand All’ button. This opens up even more details on individual datapoints.
On the positive front, Kraft has some good measures in place. Director stock ownership guidelines are in place that effectively align director and shareholder interests. ‘C’ level executives have been more or less steady and there appears to be no sign of any turnover. Directors on Kraft’s Board Finance committee who oversee major financial strategies and transactions appear to have relevant financial management experience.
Internal Control measures such as an Audit Committee charter, Board Audit Committee etc have scored reasonably well.
We are in the process of putting Hershey through our model and the results should be out soon. Keep reading and let us know how we are doing.
Have a great 2010.
