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December 14, 2009

UPDATE 2: UK: Give us value and we’ll talk, Cadbury tells suitors

Cadbury chairman Roger Carr said this afternoon (14 December) that the UK confectioner, which is facing a hostile takeover bid from Kraft Foods, had received other approaches - but insisted the company would only enter takeover talks if it received a compelling offer.

By Dean Best

Cadbury chairman Roger Carr said this afternoon (14 December) that the UK confectioner, which is facing a hostile takeover bid from Kraft Foods, had received other approaches – but insisted the company would only enter takeover talks if it received a compelling offer.


While Kraft’s cash-and-stock offer is the only bid for Cadbury on the table, Ferrero and Hershey have gone public with their interest in the Dairy Milk maker.


Reports in the UK media this weekend suggested Cadbury and US chocolate maker Hershey had held discussions over a possible deal.


However, speaking to reporters as Cadbury issued its formal defence against the Kraft bid, Carr said the company had briefly spoken to both Ferrero and Hershey but insisted that discussions would go no further until either company returned with an offer that “delivers value”.


Carr said: “We’ve told them very clearly what the rules of the game are. There’s no point getting into conversations.”


The Cadbury chairman also played down the prospect of the UK group looking to defend on the front foot and launching, for instance, a bid of its own for Hershey.


“We have no need for strategic U-turns, financial engineering or pac-man defenses,” said Carr. “We have a cultural empathy with Hershey but they’re in a market where we wouldn’t want to spend our money.”


Carr, who has been vocal in his criticism of Kraft’s offer for the company, again repeated his opposition any tie-up with the US food giant.


“There is no strategic, managerial operational or financial merit in combining with Kraft – indeed we consider the reverse is true,” Carr said. “[Kraft’s offer] is derisory on a good day because it keeps falling in value.”


In a bid to convince investors that an independent Cadbury would create more value, the company has also lifted targets for sales growth, margins and dividends under its ‘Vision into Action’ programme, which the business launched in 2007 to improve revenues and profits.


Cadbury has targeted revenue growth of 5-7% a year – compared to its earlier forecast of 4-6% – and improved underlying operating margins of 16-18% by 2013.


Analysts have expressed praise for Cadbury’s defence of its prospects as an independent company.


“We believe that Cadbury’s defence arguments against [the Kraft] bid are strong, with medium-term guidance most likely beyond what most investors would have thought,” Sanford Bernstein analyst Andrew Wood wrote in a note to clients.


“We have long-been very bullish on Cadbury, and we now believe that management guidance finally gives an appropriately aggressive view on potential for the business.”

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