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November 9, 2009

UPDATE: US/UK: Cadbury chairman Carr attacks Kraft offer

Cadbury has called on its shareholders to turn down Kraft Foods' hostile takeover bid with the UK group's chairman criticising the US food giant's offer.

Cadbury has called on its shareholders to turn down Kraft Foods’ hostile takeover bid with the UK group’s chairman criticising the US food giant’s offer.


Kraft today (9 November) tabled a formal offer of 300 pence and 0.2589 Kraft shares per Cadbury share.


The bid implies a value of 713.334 pence per Cadbury share based on Kraft’s share price of $27.68 at the close of the market on Friday – and values the Dairy Milk maker at GBP9.8bn.


On 7 September, when Kraft first put forward its plans, the proposed offer valued Cadbury at GBP10.2bn.


While Kraft insisted that the offer represents a “substantial premium” to the “unaffected share price” of Cadbury, the offer is below the UK firm’s current share value of 760.5 pence at 2.19pm (GMT) today (9 November).


On 4 September, the last day of trading before Kraft’s initial takeover proposal, Cadbury’s shares closed at 568 pence.


In September, Cadbury argued that the offer “fundamentally undervalued” the company and its future prospects.


Today, responding to Kraft’s move to simply formalise its proposal, Cadbury argued that the devaluation of the US food giant’s shares meant the offer has lost value since it was initially rejected by the UK confectioner’s board in September. 


The Trident gum maker suggested the offer is now about 4% below the original approach due to the fall in price of Kraft’s stock.


“The repetition of a proposal which is now of less value and lower than the current Cadbury share price does not make it any more attractive,” Cadbury chairman Roger Carr insisted.


Cadbury urged shareholders to reject the offer and said that it would communicate in more detail why it believes the offer falls “well short” of Cadbury’s true value as a stand-alone company.


“The board has emphatically rejected this derisory offer and has strengthened its resolve to ensure the true value of Cadbury is fully understood by all,” Carr said.


“Cadbury is an exceptional stand-alone business. It has strong iconic brands, a sharp category focus and an enviable geographic scope. Our successful financial delivery and strong business model reinforce the board’s belief in both the strategy and prospects of Cadbury as an independent company.”


Carr has repeatedly argued that the prospect of “swapping” Cadbury shares for Kraft shares is unattractive due to the US food group’s historically low growth rate.


Last week, Kraft did little to dispel this criticism when it posted a 5.7% drop in third-quarter sales, compared to Cadbury’s 7% sales growth in the third quarter.


“Kraft’s offer does not come remotely close to reflecting the true value of our company, and involves the unattractive prospect of the absorption of Cadbury into a low growth conglomerate business model,” Carr argued.


However, Kraft CEO Irene Rosenfeld has refuted this claim, insisting that the US group’s current trading and prospects are “strong” and suggesting that, through the share component, Cadbury shareholders would reap the benefits of the combination, including synergies.

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