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January 19, 2010

UPDATE 3: UK: Kraft hails ‘win-win’ Cadbury deal

Kraft Foods today (19 January) indicated that its planned acquisition of UK confectioner Cadbury represents a win-win situation for both the US food giant and Cadbury brands.

Kraft Foods today (19 January) indicated that its planned acquisition of UK confectioner Cadbury represents a win-win situation for both the US food giant and Cadbury brands.

Earlier this morning, Kraft announced that it had won the unanimous backing of the Cadbury board after it improved the terms of its takeover proposal.

Kraft’s renewed offer values Cadbury at GBP11.5bn (US$18.8bn), or 840 per share, up from the previous bid of GBP10.5bn. The deal represents 13 times Cadbury’s 2009 EBITDA.

Speaking during a conference call, Kraft management said that the combined entity is expected to benefit from increased scale, which, the company said, would generate synergies and allow access to new markets for its confectionery brands.

“This deal is about growth. Our increased scale will allow us to increase investment in Cadbury brands,” Kraft CEO Irene Rosenfeld insisted.

According to Rosenfeld, the merged company is “well positioned” to drive strong growth across the chocolate, gum and sugar confectionery categories.

The acquisition of Cadbury will also strengthen Kraft’s hand in key growth markets – with revenues from emerging markets expected to grow from 20% to 25% of total sales – as well as higher growth and margin distribution channels, such as convenience outlets in Europe and North America, Rosenfeld said.

Significantly, Kraft was able to increase its synergy targets from US$625m to $675m.

Management said that it expected to generate $300m in annualised operational savings, $250m in general and administrative costs and $125m in marketing and selling expenses. One-off costs associated with these savings are expected in the region of US$1.3bn.

While the deal is expected to be dilutive to earnings in fiscal 2010, it is expected to be accretive to EPS by five cents in fiscal 2011.

For the merger to progress, 50.1% of Cadbury shareholders must accept the tendered bit by 2 February.

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