* CFO says concerned about short-term holdings
* Private comments at odds with what chairman says
* Reiterates Kraft bid "massively undervalues" company
By Raji Menon and Victoria Howley
LONDON, Dec 18 Cadbury CBRY.L is worried about
the growing stakes being built by arbitrageurs looking to make a
profit as the group's shares rise in the run-up to a takeover,
its finance chief has told investors.
Chief Financial Officer Andrew Bonfield has expressed
concerns that such investors might tip the balance away from the
British chocolate company in its attempt to stay independent
from hostile bidder Kraft KFT.N or extract a higher price,
according to one large shareholder present at a meeting with UK
investors on Thursday.
"Cadbury is concerned that in the lead-up to any final deal,
the character of who owns the shares matters a lot when it comes
to deciding whether they should sell the shares to Kraft or keep
them," said one investor who met Bonfield.
"If they are long-term investors they may choose to keep
them if the price is wrong, but if they are short-term investors
then they don't care -- they will sell as long as they make some
kind of return," the investor said.
A spokesman for Cadbury said he could not comment on private
discussions with investors.
Merger arbitrage, where the investment is a bet on the
outcome of a takeover situation, is a strategy that has already
come under fire from Richard Lambert, the head of Britain's CBI
business lobby organisation.
Last month he attacked the role that hedge funds may play in
hostile bids because their interests are served by the outcome
of the deal itself rather than by the long term returns of the
In an interview with the Times newspaper, he argued that
investors who have owned company shares for less than six months
should be prevented from voting in takeover battles.
Bonfield's private comments follow public observations by
Chairman Roger Carr on the subject. Carr said on Monday that
there had been "limited turbulence" in the share register and
that he thought hedge funds accounted for around 14 to 15
percent of the company's stock.
Cadbury this week rejected Kraft's offer which gives it a
total market value of $16.2 billion, or 730 pence per share,
below Cadbury's 790 pence current share price level.
Bonfield also reiterated in private conversations with
investors that Kraft's deal "massively undervalued" the company.
"He made it clear they would do everything in their power to
prevent the company from disappearing too cheaply.
"We remain convinced that Cadbury is worth far more than the
current share price," the investor added.
A second investor, who also met Bonfield, said: "Cadbury has
no operational issues that would prevent them from staying
independent -- it's just a matter of persuading people to allow
them to do that."
(For the Hedge Hub blog: blogs.reuters.com/hedgehub)
(For Global Investing:
(Editing by Simon Jessop and Andrew Callus)