LONDON/CHICAGO Kraft Foods made its formal $16.1 billion offer to Cadbury shareholders, triggering a two-month takeover fight for the chocolate maker and a frosty response from Britain.
As the battle got under way in earnest, a source close to Cadbury said Kraft's offer remained "derisory", and UK business secretary Peter Mandelson warned the U.S. food giant it would face a backlash if it tried to buy Cadbury on the cheap.
"If you think that you can come here and make a fast buck you will find that you face huge opposition from the local population ... and from the British government," he was quoted as saying in a report on the Financial Times website.
A spokesman for Mandelson could not immediately confirm the comments.
The offer also starts the clock ticking for potential rival bidders, such as U.S. chocolate company Hershey Co, to make a counter offer.
Kraft's formal bid matches its original indicative bid of 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share, which the U.S. food company said valued Cadbury shares at 713 pence based on the Kraft closing price on December 1. The deal was valued at 716.6p on Friday due to changes in Kraft's share price and the pound-dollar exchange.
Cadbury shares closed down 0.6 percent, while Kraft's shares ended up 0.6 percent at $26.57 on Friday.
Analysts expect Kraft to have to pay 800p or above to win over Cadbury shareholders, in view of the UK company's upbeat third-quarter trading and the chance of a rival bidder.
"To ward off other rival bidders and to appease Cadbury shareholders, they are most likely going to improve the offer, whether it means improving the price or the cash level of the offer," said Morningstar analyst Erin Swanson.
But others acknowledge the slow, methodical approach to the bidding process that Kraft Chief Executive Irene Rosenfeld has taken, prompted by a determination not to overpay and her view that a rival bidder is unlikely to emerge.
Kraft again said on Friday that it would "remain financially disciplined" in its pursuit of Cadbury and repeated that the deal must add to earnings by the second year after completion, allowing Kraft to maintain its investment-grade credit rating and its dividend.
Cadbury declined to comment on the formal bid, but a source close to the company said: "The offer is unchanged and still derisory."
Under U.S. takeover rules, Cadbury cannot respond to Kraft's formal posting until it publishes its full defense document, which is due in the next 14 days.
Cadbury has consistently rejected Kraft's bid, forcing Kraft to turn hostile in early November and go directly to Cadbury shareholders in its aim to create the world's largest confectionery group.
"We remain confident that the unique combination of Kraft Foods and Cadbury would create a significant growth opportunity for both businesses," Rosenfeld said after publication of the offer document.
"Our offer is fully financed (and), represents a substantial premium to Cadbury's unaffected share price."
Kraft also argued that the bid was a 25 percent premium to Cadbury's closing price on September 4, the Friday before the bid was disclosed.
The document outlining the unchanged terms of Kraft's bid means that Friday is Day 1 of a 60-day timetable under UK takeover rules, giving the American company until early February to convince Cadbury shareholders to accept its bid.
Cadbury has 14 days, or until December 17, to issue its defense document, while Kraft has until Day 46 to raise its bid.
A rival could show its hand any time up to Day 60, which would reset the takeover timetable to zero.
Italy's Ferrero and U.S.-based Hershey have said separately they are considering making a bid. Analysts say the two companies may look at a joint bid, and have also cited Nestle as a possible partner in a Hershey bid.
Ferrero said it was looking at its options, while spokesmen for Hershey and the charitable trust that owns a controlling stake in Hershey declined to comment.
"Don't count them out yet," a source familiar with the situation said referring to Hershey. The source, who asked not to be named, said the company was weighing its options.
Bloomberg News reported on Friday that Hershey and Nestle had been in contact about a possible Cadbury bid, and added that an agreement might not be reached and that no final decision had been made. Nestle did not return calls seeking comment.
Cadbury Chief Executive Todd Stitzer has signaled support for a possible tie-up with Hershey, saying the U.S. chocolate maker would make a better cultural fit than Kraft.
It would create the world's biggest confectionery group ahead of privately owned Mars-Wrigley, bringing Cadbury Dairy Milk chocolate and Trident gum together with Kraft's Milka and Toblerone chocolate as well as its Velveeta cheese, Oreo cookies and Maxwell House coffee.
Cadbury is due to give a fourth-quarter trading update on December 15 and may combine this with its official defense document and give longer-term targets, especially on margins.
It currently aims to grow annual underlying sales by 4 percent to 6 percent and achieve "good" mid-teen percentage operating margins by 2011.
(For a graphic showing Kraft and Cadbury comparison, click here: http:/graphics.thomsonreuters.com/129/EZ_CKHN1209.gif)
(Additional reporting by Jo Winterbottom, Victoria Howley and Jessica Hall; Editing by John Stonestreet)