- The Washington Times - Wednesday, January 6, 2010

LONDON — Kraft Foods Inc. announced Wednesday that holders of 1.5 percent of shares in chocolate and gum maker Cadbury PLC have accepted its hostile takeover offer so far, but U.S.-based Kraft may gain more support as its offer price moves closer to Cadbury’s market value.

The gap narrowed on Tuesday as Swiss food company Nestle said it would not make an offer for Cadbury, Kraft offered more cash in an alternative — but no higher — offer, and billionaire Warren Buffett, Kraft’s biggest shareholder, warned against offering any more stock to sweeten the offer.

Kraft financed its enhanced cash offer by selling its U.S. pizza business to Nestle.

London’s Financial Times called Mr. Buffett’s intervention “a blatant attempt to talk up the food group’s share price,” and if so, it worked. Kraft shares closed Tuesday at $28.77, up 4.9 percent, while Cadbury was down 3.2 percent at 779 pence ($12.45), narrowing the gap between the Kraft offer and the market price for Cadbury shares.

Cadbury shares continued to fall Wednesday morning, down 1 percent at 771 pence ($12.32) after the first hour of trading on the London Stock Exchange.

Kraft’s cash-and-shares offer values Cadbury, maker of Milk Tray chocolates and Clorets chewing gum, at 758 pence ($12.11) per share, based on Tuesday’s prices.

“We believe it is increasingly worthwhile considering the merit in taking the offer on the table today, unless one is convinced by Kraft’s onward prospects or the prospect of a materially higher offer,” analysts at Shore Capital Stockbrokers said Wednesday.

“We reiterate our view that Cadbury stock could readily rest in the 600- to 650-pence ($9.59 to $10.39) range if the Kraft offer should lapse or fail,” they added.

Some analysts in London believe, however, that Kraft will have to bid above 800 pence ($12.79) to seal a deal.

“We continue to think that Kraft can offer a headline bid of up to 820 pence ($13.11), consistent with achievement of $625 million synergies (at a cost of $1.2 billion) and maintenance of earnings neutrality three years out,” said Martin Deboo, analyst at Investec Securities.

Cadbury shareholders have until Feb. 2 to decide whether to accept the 10.3 billion-pound ($16.5 billion) offer by Kraft or back Cadbury management’s determination to remain independent.

Despite signs of interest from the Hershey Co., the U.S. chocolate maker, and Italy’s Ferrero International SA, Kraft remains the only bidder for Cadbury. If Kraft cannot win support from a majority of shareholders by Feb. 2, it will be barred from making another offer for six months.

Kraft has until Jan. 15 to disclose any new, material information about its bid, and it plans to release detailed trading results for 2009 by that time.

It then has until Jan. 19 to make any revisions to its offer.

Kraft shareholders will meet on Feb. 1 to vote on whether to issue up to 370 million shares to support the offer.

While Mr. Buffett’s Berkshire Hathaway, which owns 9.4 percent of the company’s stock, can’t squelch the deal with its vote alone, the influence of Mr. Buffett, known as “the sage of Omaha,” may sway other shareholders and Kraft’s management.

Mr. Deboo argued that Mr. Buffett wasn’t necessarily opposed to Kraft’s ambitions.

“What we think Berkshire is trying to do is to challenge Kraft’s management to back their conviction with cash, and hence debt — not equity,” Mr. Deboo said in a research note.

“The underlying message … in our view is that Berkshire thinks management are being too cavalier with equity, which — as managements are wont to do — they are treating as somehow ‘free.’”

Cadbury dismissed Tuesday’s revised offer.

“Kraft has once again missed the point,” the company said. “Despite this tinkering, the Kraft offer remains unchanged and derisory with less than half the consideration in cash.”

Cadbury Chairman Roger Carr said Kraft’s offer is limited by powerful Kraft shareholders such as Mr. Buffett restricting the stock content and constrained by rating agencies limiting how much cash it can put up.

Cadbury has opposed Kraft’s offer staunchly, but its management says it would be open to a deal that properly valued the company.

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