What do you understand by franchising? - Vidyadip

Question

What do you understand by franchising?

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Answer

Franchising is a process by which the rights of producing or selling any product or service are provided to another enterprise. It is also associated to fulfilment of some terms, conditions or requirement by the enterprise. These conditions are laid down by the parent company.

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'Janata Foods Ltd.' is a restaurant situated on a national highway near Hyderabad. The following figures have been extracted from the books of Janata Foods Ltd.:

	₹
Stock of Raw Material	1,50,000
Short-Term Loans	1,83,000
Trade Creditors	96,000
Trade Debtors	2,25,000
Dividend Payable	1,50,000
Tax Payable	1,32,000
Short-Term Investments	2,28,000

From the above information, calculate the following:

Gross Working Capital.
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Kraft's Takeover of Cadbury-By Scott Moeller,
The Story In 2009, the US food company Kraft Foods launched a hostile bid for Cadbury, the UK-listed chocolate maker. It became clear almost exactly two years later in August 2011, Cadbury was the final acquisition necessary to allow Kraft to be restructured and indeed split into two companies by the end of 2012: a grocery business worth approximately, $16bn and a $32bn; global snacks business. Kraft needed Cadbury to provide scale for the snacks business, especially in emerging markets such as India. The challenge for Kraft was how to buy Cadbury when it was not for sale.
The History,
Kraft itself was the product of acquisitions that started in 1916 with the purchase of a Canadian cheese company. By the time of the offer for Cadbury, it was the world's second largest food conglomerate, with seven brands that each generated annual revenues of more than $lbn. Cadbury, founded by John Cadbury in 1824 in Birmingham, England had also grown through mergers and demurrers. It too had recently embarked on a strategy that was just beginning to show results. Ownership of the company was 49% from the US, despite its UK listing and headquarters. Only 5% of its shares were owned by short-term traders at the time of the Kraft's bid.
The Challenge,
Not only was Cadbury not for sale, but it actively resisted the Kraft's takeover.
Sir Roger Carr, the Chairman of Cadbury was experienced in takeover defences and immediately put together a strong defensive advisory team. Its first act was to brand the 745 pence per share offer 'unattractive', saying that it 'fundamentally undervalued the company'.
The team made clear that even if the company had to succumb to an unwanted takeover, almost any other confectionery company (Nestle, Ferrero and Hershey were all mentioned) would be preferred as the buyer. In addition, Lord Mandelson, then the UK's business secretary, publicly declared that the government would oppose any buyer who failed to 'respect the historic confectioner.
The Response,
Cadbury's own defence documents stated that shareholders should reject Kraft's offer because the chocolate company would be 'absorbed into Kraft's low growth conglomerate business model-an unappealing prospect that sharply contrasts with the Cadbury strategy of a pure play confectionery company'.
Little did Cadbury's management know that Kraft's plan was to split it into two to eliminate its conglomerate nature and become two more focused businesses, thereby creating more value for its shareholders.
The Result,
The Cadbury team determined that a majority of shareholders would sell at a price of roughly 830 pence a share. A deal was struck between the two Chairmen on 18th January, 2010 at 840 pence per share plus a special 10 pence per share dividend. This was approved by 72% of Cadbury shareholders, two weeks later.
The Key Lessons: In any takeover, especially a cross-border deal in which the acquired company is as well known as Cadbury was in the UK, the transaction will be front-page news. In this case, it was the lead business story for at least four months. Fortunately, this deal had no monopoly or competition issues, otherwise those regulators could also have been involved.
But aside from any regulators, most other commentators will largely be distractions. It is important for the acquiring company's management and advisers to stay focused on the deal itself and the real decision-makers - the shareholders of the target company.
As this deal demonstrates, these shareholders may not (and often will not) be the long-term traditional owners of the target company stock, but rather very rational hedge funds and other arbitragers (in Cadbury's case, owning 31% of the shares at the end), who are swayed only by the offer price and how quickly the deal can be completed.
Other stakeholders may have legitimate concerns that need to be addressed but this can usually be done after the deal is completed, as Kraft did.

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