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September 14, 2009

UK/US: Cadbury attacks “low-growth” Kraft

Cadbury chairman Roger Carr has labelled Kraft Foods a “low-growth” company in a strongly-worded letter to the US food giant’s chief Irene Rosenfeld to explain why the UK confectioner snubbed a GBP10.2bn (US$16.9bn) takeover proposal last week.

Cadbury chairman Roger Carr has labelled Kraft Foods a “low-growth” company in a strongly-worded letter to the US food giant’s chief Irene Rosenfeld to explain why the UK confectioner snubbed a GBP10.2bn (US$16.9bn) takeover proposal last week.


In the letter, made public by Cadbury on Saturday (12 September), Carr said a sale to Kraft was “an unappealing prospect” and insisted that the UK firm believed in its strategy to be an independent company focused squarely on confectionery.


“Your proposal is for Cadbury shareholders to exchange shares in a pure-play confectionery business for cash and shares in Kraft, a company with a considerably less focused business mix and historically lower growth,” Carr wrote to Kraft chairman and CEO Irene Rosenfeld.


Kraft announced its proposed cash-and- share offer to Cadbury shareholders last Monday , which was rejected by the Dairy Milk maker’s board.


During last week, Rosenfeld stepped up the pressure on the Cadbury board, claiming that the company’s potential to grow was “constrained” and that joining Kraft would allow the combined group to compete more effectively against the likes of Mars and Nestle.


However, writing to Rosenfeld, Carr repeated Cadbury’s belief that the Kraft proposal undervalues the company.


“The proposal is of uncertain value for Cadbury shareholders as underlined by the movement in the Kraft share price since your announcement,” Carr said. “Your proposal fundamentally fails to reflect the current value of Cadbury as a standalone business, its growth prospects and the potential synergies of a combined entity.”


Andrew Wood, an analyst at Sanford Bernstein, said the tone of Carr’s letter was “strong and not very friendly”.


“While stating that the bid ‘is unattractive and fundamentally undervalues Cadbury’ is not a surprise, describing Kraft as a ‘low-growth, conglomerate business’ is strong language, although arguably true,” Wood said.


“The strong tone is probably a result of the decision by Kraft’s CEO to not engage in a longer, more constructive dialogue with Cadbury before going public with the proposed offer, and so blind-siding Cadbury management in the process.”


Wood claimed, however, that a second, higher offer from Kraft – at GBP9 a share – would be accepted by Cadbury shareholders.


“We believe that a GBP9.00 bid for Cadbury by Kraft will allow this deal to get done. In our view, this price, while still fundamentally under-valuing Cadbury, will be satisfactory to both sides.”


Officials at Kraft could not be reached for immediate comment. Shares in Cadbury were up 0.8% at 782p at 09:13 this morning.

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