Shareholder sues Cadbury officers over Kraft bid

CHICAGO Thu Oct 1, 2009 3:50pm EDT

Cadbury's chocolate bars are seen in a shop in London in this June 23, 2006 file photograph. REUTERS/Alessia Pierdomenico /Files

Cadbury's chocolate bars are seen in a shop in London in this June 23, 2006 file photograph.

Credit: Reuters/Alessia Pierdomenico /Files

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CHICAGO (Reuters) - A shareholder of Cadbury is suing the British confectioner's board and chief executive, saying investors "stand to lose out massively" if the company refuses to negotiate over a $15.68 billion takeover bid from Kraft Foods Inc.

The lawsuit, filed in U.S. District Court in New Jersey on Wednesday by Steward International Enhanced Index Fund, seeks class action status and names Cadbury CEO Todd Stitzer, Chairman Roger Carr and the company's board of directors as defendants.

The lawsuit asks the court to order Cadbury directors and officers to respond in good faith to offers which are in the best interest of Cadbury shareholders and to prevent Cadbury's board from enacting takeover defenses.

"Cadbury shareholders stand to lose out massively if the Cadbury board continues to refuse to negotiate a transaction with Kraft," the lawsuit said. "But Cadbury's board stands to lose its lavish compensation and positions of power if Cadbury is sold."

Kraft made public its proposed offer for Cadbury on September 7 after Cadbury rejected the bid. On Tuesday, Britain's Takeover Panel said Kraft, the world's second-largest foodmaker, had until November 9 to make a formal offer for Cadbury or else walk away for six months.

The lawsuit says Cadbury shares were trading at 581 pence when Kraft CEO Irene Rosenfeld proposed a purchase of Cadbury that was then valued at $16.7 billion, or 745 pence per share. Cadbury shares closed at 803.5 pence on Thursday in London.

A Cadbury spokesman said on Thursday that the company has not seen the lawsuit. "However, we note that no offer has been made for Cadbury" under British law, spokesman Trevor Datson said.

Kraft, which is not named as a party in the lawsuit, declined to comment.

SHORT-NOTICE FINANCING

One step in making an offer is for Kraft to show it has committed financing in place. Banking sources told Reuters Pricing Corporation on Thursday that Kraft bankers are confident it can arrange a jumbo bridge loan to finance the bid.

Citigroup, Deutsche Bank and HSBC will co-ordinate the bridge loan, but that group could be expanded further, a senior banker close to the deal told RLPC.

Cadbury's comments in opposing the Kraft bid have also drawn the scrutiny of Britain's Takeover Panel.

Stitzer was quoted last week as saying Kraft's bid made some strategic sense, according to a note from Bank of America/Merrill Lynch on Wednesday. He was described as detailing the potential benefits from a takeover and discussing industry deal valuations during a closed Merrill investor conference.

Two days later, Cadbury issued a statement clarifying the remarks and said Stitzer did not believe the offer made strategic or financial sense.

Absent a competing bid, Kraft is expected to wait until close to the November 9 deadline before making a formal offer. That would allow the foodmaker to take advantage of the falling British pound, which is making the offer less expensive for Kraft in dollar terms.

Analysts are doubtful that another offer is forthcoming, though U.S. chocolate maker Hershey Co and the charitable trust that controls the company's voting stock have been weighing options since Kraft disclosed its bid.

The prospect of global food leader Nestle making a joint bid with Hershey has also been raised. Nestle CEO Paul Bulcke has declined to comment on a possible bid, but said the company does not plan on making any big acquisitions in 2009 and 2010.

Shares of Kraft fell 1.1 percent to $25.97 late-afternoon trading on the New York Stock Exchange, amid broad losses for U.S. stocks on economic worries.

The case is Steward International Enhanced Index Fund v. Carr et al, U.S. District Court, District of New Jersey (Newark), No. 09-5006.

(Reporting by Brad Dorfman; Additional reporting by Jessica Hall; Editing by Tim Dobbyn and Richard Chang)

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