Kraft Foods said today (6 January) that only 1.52% of Cadbury’s shareholders have so far accepted its hostile takeover bid for the UK confectioner.
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Such a small fraction of investors accepting Kraft’s approach by yesterday’s initial deadline has been viewed as a sign that the US food giant will have to increase its offer in order to win control of Cadbury.
However, Kraft has instead pinned its hopes for success on a move to raise the cash component of its offer, which is worth around GBP10.3bn (US$16.5bn).
Kraft said yesterday that it would use the finds from the US$3.7bn sale of its North American frozen pizza business to Nestle to increase the cash portion of its offer from 300 pence per share to an expected 360p per share.
Nevertheless, Kraft still plans to fund over half of the offer by issuing new Kraft shares to Cadbury investors.
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By GlobalDataSuch a move has not only faced opposition from Cadbury investors – many of whom favour a higher cash payout – but also from Kraft’s own shareholder base.
Following publication of Kraft’s revised offer, Berkshire Hathaway, Warren Buffett’s investment vehicle – and Kraft’s largest shareholder – said it would oppose the US group’s proposal to issue up to 370m new Kraft shares to fund its bid for the Dairy Milk maker.
The news, coupled with Nestle’s announcement that it is not considering a bid for the chocolate group, sent Cadbury shares tumbling 3.2% yesterday and a further 1% in morning trade today, dropping to 772 pence at 11.30 (GMT) this morning.
Simultaneously, Buffett’s argument against the Kraft share issue – that the company’s shares are currently undervalued – bolstered the Toblerone maker’s market value. Kraft shares rose almost 5% in afternoon trade yesterday to close at $28.77.
The movement in share price has narrowed the gap between Kraft’s offer – which currently values Cadbury at 758p per share – and market capitalisation of the UK firm.
Kraft, which also makes chocolate brands including Milka and Terry’s Chocolate Orange, has until 15 January to disclose new information about its bid and plans to release a trading update for 2009 before this date. It then has until 19 January to make any revisions to its offer.
Kraft shareholders will meet at the beginning of February to vote on whether the group should issue new shares to support the takeover attempt.
For its part, Cadbury plans to release its next trading update on 15 January and management continues to resist Kraft’s “derisory” approach.
