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Cadbury Battles 'Derisory' Offer From 'Unattractive' Kraft

Mon, 12/14/2009 - 4:10am
Jane Wardell, AP Business Writer

LONDON (AP) -- Cadbury PLC revealed Monday it has received approaches from The Hershey Co. and Italy's Ferrero International SA as it launched a robust defense against a hostile 9.8 billion pound ($16.3 billion) from Kraft Foods Inc.

Cadbury Chairman Roger Carr said the statements of intent from Hershey and Ferrero were too preliminary to start proper talks as he warned shareholders not to let Kraft "steal your company with its derisory offer."

The British chocolate and gum maker also raised its long-term performance targets to play up its position as a strong independent company.

The prospect of the 195-year-old company falling into foreign ownership has caused some consternation in Britain were it is a much-loved brand -- a member of Cadbury's founding family has been publicly critical and the country's leading labor union fears large-scale job losses.

But Carr left open the door for some kind of tie-up, saying that Cadbury was open to discussion with any potential suitor -- Kraft included -- that made a compelling offer that fully valued the company.

"As yet, we've only had one offer, which is far from compelling, it is ... derisory on a good day because it's falling, and we've had a statement of intent from two people that are yet to come forward with an offer," Carr told reporters.

"We have told them very clearly what the rules of the game are, but until they come forward ... that meets those criteria, then there is no point in getting into conversations," Carr said when asked if the board had held talks with Hershey and Ferrero.

Shares in Cadbury have shot up in recent weeks on the prospect of a bidding war following Kraft's unsolicited approach. Analysts have also suggested that Nestle SA may be interested, although the Swiss company has made no comment.

Kraft -- the maker of Oreo cookies, Nabisco crackers and its namesake cheese -- took its cash and shares offer straight to shareholders of the British candy company earlier this month after the Cadbury board rejected an almost identical approach.

The proposed deal, which would create a global giant with an estimated $50 billion in combined revenue, includes 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share. That is worth 727 pence a share, based on the close of trading on Dec. 11.

The stock was trading well above Kraft's bid price at 792 pence per share on Monday, up 0.25 percent.

While Kraft CEO and chairman Irene Rosenfeld has argued the U.S. company's offer is a substantial premium to Cadbury's "unaffected" share price, analysts suggest Kraft would need to raise its offer to around 850 pence to even begin talks.

"I think there's an entry ticket price that one needs to pay ... we are a long, long, long way off that with the current position," Carr earlier told analysts.

Carr told shareholder that Kraft was "trying to buy Cadbury on the cheap to provide much needed growth to their unattractive low-growth conglomerate business model."

"Don't let Kraft steal your company with its derisory offer," he added in the company's formal defense document.

Kraft and others are attracted to Cadbury, the maker of Dairy Milk chocolate and Dentyne gum, for its strong international reach and key presence in emerging markets.

Cadbury ramped up its defense of that value on Monday by announcing new long term targets, including organic revenue growth of 5-7 percent per year, up from a previously forecast 4-6 percent, improved margins of 16-18 percent by 2013, up from "mid-teens" and double digit growth in dividends per share from 2010 onwards.

In an accompanying trading update, Cadbury CEO Todd Stitzer said the company was planning for full year revenue growth "around the middle of our 4-6 percent goal range, and for an improvement of at least 135 basis points in constant currency trading margin."

Some analysts have suggested those projections, at the top of the forecasts for the confectionary market, could be tough to achieve alone.

"Whilst we have never regarded potential interest from Ferrero or Hershey as amounting to the likelihood of a competing hostile approach, some form of trading partnership could form part of a so-called "white knight" relationship designed to maintain the status quo in global confectionary manufacturing," said Charles Stanley analyst Jeremy Batstone-Carr.

"Either that or alternatively the possibility of stake building in Cadbury aimed at effectively blocking Kraft from establishing the necessary shares to gain control once the offer period runs out," he added.

Kraft has said it wants to get the majority shareholder votes by Jan. 5, but it can take until February to complete the process under regulations.

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