- The Washington Times - Tuesday, September 8, 2009

LONDON | Kraft Foods Inc. on Monday proposed a $16.7 billion takeover of Cadbury PLC, but the offer was immediately rejected by the British maker of chocolate, gum and candy.

Cadbury shares shot up 41 percent to 803.5 pence (about $13.15) at midday on the London Stock Exchange, about the minimum that analysts suggested Kraft would have to pay to clinch a deal.

Cadbury said the offer undervalued the company, and expressed confidence in its “standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope.”

Kraft was undeterred, however, and said it would continue to seek a transaction that Cadbury’s board could support.

Kraft, whose brands include Velveeta cheese product and Oreo cookies, said it had proposed paying 300 pence (about $4.91) in cash and 0.2589 new Kraft Foods shares per Cadbury share, valuing Cadbury shares at 745 pence (about $12.19).

That represents a 31 percent premium over Cadbury’s closing share price of 568 pence ($9.30) on Friday.

Cadbury had a 10.3 percent share of the world confectionary market in 2008, second only to McLean-based Mars Inc. with 14.8 percent. Kraft was fifth at 4.5 percent.

Cadbury controls 28.4 percent of the world gum market, while Kraft has a bare 0.1 percent stake in that sector.

Graham Jones, analyst at Panmure Gordon & Co., recommended that shareholders hold out for at least 800 pence ($13.09) a share.

“A key question is whether there is a counter-bid, most likely from a Nestle-led consortium,” Mr. Jones said. “However, we see the most likely scenario being Kraft being successful on improved terms.”

Jeremy Batstone-Carr at Charles Stanley & Co. said it might take more than 800 pence ($13.09).

“Note that the Kraft offer values Cadbury on less than 2 times sales, significantly lower than the 2.3 times sales it paid for Danone’s biscuit operations or the … 3.7 times sales paid by Mars for Wrigley,” Mr. Batstone-Carr said.

Kraft, based in Northfield, Ill., said the combination would create “a global powerhouse in snacks, confectionery and quick meals,” with leading positions in developing markets, including India, Mexico, Brazil, China and Russia.

“This proposed combination is about growth. We are eager to build upon Cadbury’s iconic brands and strong British heritage through increased investment and innovation,” said Irene B. Rosenfeld, chairman and CEO of Kraft Foods.

Kraft may be in for a fight.

“Speculation is already mounting that Hershey and Nestle may come together in one form or another to counter-bid, with Nestle potentially interested in Cadbury’s gum business and Hershey in the chocolate-confectionery brands, with other interested parties,” said Darren Shirley, analyst at Shore Capital.

Cadbury nearly tripled its net profit in the first half of the year as the company pocketed a big gain from the sale of its beverage business, and chocolate consumption rose.

Kraft’s second-quarter profit rose 11 percent to $827 million, though revenue fell 5.9 percent to $10.16 billion as the dollar’s strength weighed on international sales.

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