PREVIEW-Kraft results to trigger Cadbury deal countdown

Thu Oct 29, 2009 5:32pm EDT

 * Kraft Q3 reports Nov 3, EPS seen $0.48 vs $0.44
 * Clock ticking on Cadbury deal
 * Kraft plans no comment on Cadbury, results may tip hand
 By Brad Dorfman
 CHICAGO, Oct 29 (Reuters) - The clock will really start
ticking on a deal to create the world's biggest confectioner
once Kraft Foods Inc KFT.N reports earnings next week.
 Kraft made its $16.5 billion cash and stock offer for
British chocolatier Cadbury Plc CBRY.L on Sept. 7. Kraft
Chief Executive Irene Rosenfeld has since held back on further
moves and her waiting game has paid off as no rival bidder
emerged and Cadbury shares retreated.
 Kraft reports third-quarter earnings on Tuesday and people
familiar with the matter have said not to expect new maneuvers
 However, the company faces a Nov. 9 deadline to put in a
formal bid under a UK Takeover Panel ruling, leaving a narrow
window of time to make an approach to Cadbury.
 Kraft said the company would focus on discussing its
earnings results on Nov. 3 and not comment on Cadbury. But for
investors on both sides of the fence, the numbers themselves
will do a lot to tip Kraft's hand on whether, and by how much,
it might increase its offer.
 "That will likely affect the stock price, which affects the
bid," said one source familiar with the matter, who was not
authorized to speak on the record. "Any talk of altering the
bid is premature until you see how earnings come out and how
the stock performs. You have to take step one before you take
step two."
 Kraft is expected to post earnings of 48 cents a share for
the quarter, up from 44 cents a year earlier, according to the
average of analysts' estimated compiled by Thomson Reuters
I/B/E/S. Much of the improvement is likely due to falling
commodity prices and cost-cutting, which have helped Kraft
counter declining sales.
 One shareholder who owns stock in both companies expects
Kraft to post strong earnings, with the company hoping its
stock rises as high as $30, and then make its revised bid for
Cadbury. Kraft shares closed at $27.55 on Thursday.
 On the day Kraft disclosed its informal bid, Cadbury shares
shot up 38 percent and hit an all-time high of 808 pence,
representing an 8.5 percent premium to the offer at the time.
 Industry analysts said Kraft may need to offer as much as
850 pence to 900 pence to seal a deal, particularly if it needs
to fend off interest from rivals like Hershey Co (HSY.N) or
Nestle (NESN.VX).
 But hopes of much higher offers have waned in the last week
as Hershey and Nestle remain silent on any potential interest.
 Since then, the premium built into Cadbury shares has
shrunk to about 5.4 percent [EU/MERGER1] and some of its
investors say Kraft could succeed with an offer closer to 820
pence. [ID:nLQ124325] [ID:nLM147142]
 Cadbury shares closed at 773.36 pence on Thursday, while
the Kraft offer is currently valued at 731.2 pence.
 Rosenfeld still must show Cadbury's shareholders that Kraft
has the growth prospects to make its shares worthwhile in her
biggest gambit since taking the CEO role in 2006. Cadbury
Chairman Roger Carr dubbed Kraft a "low growth conglomerate" in
his letter to Rosenfeld rejecting the initial offer.
 She also needs to impress upon Kraft shareholders that the
company can post solid returns on its own if it does not
acquire Cadbury and its faster-growing confectionery business,
which includes expansion in emerging markets like India.
 "A lot of it, frankly, is going to be posturing and showing
confidence in the fact that they can be a growth-geared company
and not this stigma that some people are putting on them of
being a low-growth conglomerate company," said Edward Jones
analyst Matthew Arnold.
  (GBP = $1.6541)
 (Additional reporting by Victoria Howley in London and Jessica
Hall in Philadelphia; Editing by Michele Gershberg and Matthew

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