Kraft Foods has this morning (5 January) outlined plans to offer more cash to shareholders of hostile takeover target Cadbury after the US food giant agreed to sell its North American frozen pizza business to Nestle.

Cadbury investors will have the chance to receive a “partial cash alternative” as part of Kraft’s offer, a set of terms that will be funded by the group’s US$3.7bn pizza deal with Nestle.

Meanwhile, in the wake of the pizza sale, Nestle, which had been touted as a possible bidder for Cadbury, issued a statement to insist the Swiss food giant “does not intend to make, or participate in, a formal offer”.

Kraft’s pizza disposal and revised offer were announced just hours before the deadline for Cadbury shareholders to decide on the US firm’s bid, which the UK confectioner’s board had labelled “derisory on a good day”.

Kraft plans to release more details of the “partial cash alternative” by 19 January. However, the company said it will apply “an amount equivalent to the net proceeds from the pizza sale”, estimated to be 60p per Cadbury Share or 240p per Cadbury ADS, to fund the new cash part to its offer.

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“Kraft Foods is doing this because of the desire expressed by some Cadbury securityholders to have a greater proportion of the offer in cash and because Kraft Foods shareholders have expressed a desire for Kraft Foods to be more sparing in its use of undervalued Kraft Foods shares as currency for the offer,” the company said. 

Kraft said its formal offer remains unchanged until the details of the partial cash alternative are announced. Once those terms are set, Kraft said its value may be more or less than that of the basic terms of the offer depending on the prevailing market price of Kraft’s shares and the US dollar/sterling exchange rate.

“Kraft Foods continues to believe that its share price is depressed as a consequence of a number of short term factors which it believes will dissipate once the uncertainty surrounding its offer for Cadbury is resolved,” the group said.

The US group has extended the deadline for Cadbury investors to decide on its offer from 1pm today to 2 February.

Tomorrow, Kraft will publish the level of Cadbury investors that had tended their shares by 1pm today.