INSIGHT: Kraft & Cadbury - prospects for Western Europe

Hershey, Ferrero and Nestle may be named as potential suitors for Cadbury but Kraft Foods remains the front-runner to buy the Dairy Milk maker - and the US food giant was today (1 December) named the "favourite" by a leading investment analyst. A report from industry researchers Food For Thought has put together a study of how a combined Kraft and Cadbury would look in western Europe. Below are the key conclusions from the report.

How a combined Kraft-Cadbury entity would look in western European markets, by product:

A Cadbury acquisition would add chewing gum to Kraft's portfolio - its own chewing gum activity being relatively modest. A post-merger company would control some 25% of the western European gum market.

Kraft's sugar and chocolate confectionery market shares in Western Europe would be greatly enhanced.

Just three product markets, chocolate confectionery, excluding count-lines (23.5%), biscuits (12.9%) and bean and ground coffee (12.7%) would make up almost 50% of the combined Kraft and Cadbury sales turnover of a total near EUR20bn (US$30.12bn).

According to Food For Thought, an acquisition of Cadbury by Kraft would create a lengthy product portfolio - offering potential for disposals.

The overall product portfolio features a long tail of minor products in terms of market share, no doubt calling for future culling, offering acquisition opportunities to others.

The top-seven product categories would contribute 70% of turnover. The 32 other product categories, identified in western Europe and contributing less then 10% of total combined company turnover, would be very scattered and suggest that many opportunities exist to either consolidate existing activities or to hive off non-strategic ones.

How a combined Kraft-Cadbury would look in western Europe, by country:

The major national markets, France (20.3%), the United Kingdom (20.0%) and Germany (16.7%) would contribute close to half of the combined group's sales with a 47% share.

Kraft's presence in Western Europe has been strong in almost all countries, but comparatively weak in the UK and Ireland, precisely where Cadbury can make a big contribution.

Unsurprisingly, it is in the major markets of the UK and France that the impact of any potential merger would be most pronounced on group turnover. The UK would be the second-largest market of the two combined companies.

Other sizeable markets in western Europe would be Italy (11.8%), Spain (6.7%) and Belgium/Luxembourg (5.1%), taking the lead markets to a little over 70% of combined revenues.

The remaining smaller national markets, in all of which the combined companies are present, contribute smaller amounts.

While the top-12 markets would contribute 90% of turnover, the remaining 32 out of 44 western European markets would contribute just 13.6% to the combined group's turnover.