Cadbury UK investors see Kraft deal despite Buffett

LONDON Thu Jan 21, 2010 12:07pm EST

The Cadburys logo on a bar of chocolate, December 14, 2009. REUTERS/Toby Melville

The Cadburys logo on a bar of chocolate, December 14, 2009.

Credit: Reuters/Toby Melville

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LONDON (Reuters) - Cadbury's big UK investors expect Kraft's $19.3 billion acquisition of the British confectioner will go ahead despite Kraft's top shareholder Warren Buffett saying the takeover is a "bad deal."

Earlier this week, Cadbury agreed to the cash and shares takeover valuing its shares at 840 pence, but Buffett's comments hit Kraft shares on Wednesday and currently the bid is valued at 834p a Cadbury share, or 11.8 billion pounds ($19.3 billion).

Cadbury shares were off 0.2 percent at 832p by 1155 GMT in a largely flat London stock market Thursday.

"No, I don't think he can derail the bid. The transaction is well within the permitted limits. What he may be trying to do is warn them against bidding again should Hershey/Ferrero make a bid in the next few days," one top 20 investor told Reuters.

Potential bidders, which have already expressed interest in Cadbury, such as U.S.-based Hershey and Italy's Ferrero have until 0700 GMT on January 25 to make a fully financed bid to rival Kraft under UK takeover rules.

Another top investor said Buffett's comments were unlikely to have any effect on the deal.

"He doesn't get a vote, he doesn't get a say basically. He's commenting from the sidelines. Anybody can have a view.

"Cadbury holders knows they are getting Kraft stock so what they are doing is locking in the price by shorting the Kraft stock now. So in case the Kraft stock falls further, investors will always get this price," the investor added.

Buffett's investment vehicle Berkshire Hathaway holds a 9.4 percent stake in Kraft, and has before warned Kraft's CEO Irene Rosenfeld not to overpay for Cadbury especially by issuing too many Kraft shares.

Rosenfeld boosted the cash portion in her increased bid on Tuesday up to 60 percent and cut the number of new Kraft shares by around a quarter to try and appease Buffett, but he continued to criticize the deal.

"She thinks this is a good deal, I think it's a bad deal," he told cable business channel CNBC on Wednesday.

Cadbury Chairman Roger Carr is said by sources close to the situation to have held out for 850p deal, and agreed a 840p deal plus a 10p special dividend, but that dividend comes in lieu of Cadbury's final dividend of 12.3p which it had promised shareholders earlier this month.

Some UK shareholders believe the current bid still undervalues Cadbury but are expected to vote for the deal which has been recommended to shareholders by the Cadbury board.

Cadbury's second largest shareholder Legal & General Investment Management Ltd, which has a 5.1 percent stake, said on Tuesday that the Kraft offer did not reflect true value but did not say it would vote against the bid.

($1=.6126 Pound)

(Reporting by Raji Menon and David Jones; Editing by Hans Peters)

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