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RPT-UPDATE 6-Killer Kraft bid seen unlikely despite Cadbury Q3
October 21, 2009 / 6:05 AM / in 8 years

RPT-UPDATE 6-Killer Kraft bid seen unlikely despite Cadbury Q3

* Cadbury Q3 sales beat forecasts

* UK confectioner hikes 2009 sales, margin targets

* Sees at least 5 pct growth in 2010 and 2011

* Shares up slightly after upbeat trading

(Rewrites with further analysts, details, updates shares)

By David Jones

LONDON, Oct 21 (Reuters) - A bumper update and raised full-year targets from British confectioner Cadbury CBRY.L failed to enthuse shareholders, suggesting scepticism about a sharply higher bid from spurned suitor Kraft KFT.N.

The London-based confectionery group said on Wednesday underlying sales rose 7 percent in its July-September quarter, beating even the most bullish forecasts, and unexpectedly increased both its sales and margin growth targets for 2009.

Cadbury shares initially rose 1.2 percent to 808.95 pence, the highest since its 2008 soft drinks demerger, and well above Kraft’s current cash and share offer worth 726 pence, but drifted back to stand up 0.2 percent at 800p by 1345 GMT.

Analysts said the likely absence of the counter bidder put a dampener on the size of a possible raised offer.

“We would maintain our belief that a deal with Kraft may be closed near or at 820p, with a much larger cash component than initially suggested by Kraft,” said Pablo Zuanic at JP Morgan.

Others agreed that 820-830p might succeed as while Kraft will not want to bid against itself in the absence of a white knight, CEO Irene Rosenfeld is unlikely to walk away on a deal on which her career is likely to rest.

“There is no reason why they would take a giant leap first because there does not seem to be a competitor in terms of this bidding process,” said Edward Jones analyst Matt Arnold.

Cadbury has repeatedly rejected Kraft’s 10.2 billion pound ($16.9 billion) cash and shares proposal made in early September and the UK Takeover Panel has given Kraft a deadline of Nov. 9 to come up with a firm bid or walk away for six months.

A Kraft spokesman declined to comment on the update while Kraft shares were off 0.1 percent at $27.20 in New York. Analysts believe Kraft will wait until after its own third-quarter earnings on Nov. 3 before raising its bid.

Kraft’s takeover proposal of 40 percent cash and the rest in new Kraft shares valued Cadbury shares initially at 745 pence or 10.2 billion pounds, but the fall in Kraft shares makes it currently worth 726p, over 70 pence below Cadbury’s share price.

For current values based on the latest share prices, click on <EU/MERGER1>


Cadbury Chief Executive Todd Stitzer said the group was returning to more “normal” growth rates and saw at least 5 percent underlying sales growth in 2010 and 2011, but made no mention of the proposed multi-billion pound bid from Kraft.

“We have the momentum and the growth,” Stitzer told a telephone briefing after the update, adding the group had delivered growth in every category and business in the quarter.

Cadbury said it expected 2009 sales growth of around 5 percent, up from 4 percent previously, and its operating margin percentage to jump at least 135 basis points rather than its old target of 80-100 basis points. These targets were approved by Cadbury’s financial advisers and independent auditors.

For a Reuters column on Cadbury click on [ID:nLL85342]

Some analysts pushed up their forecasts for a successful bid by Kraft for the world’s second largest confectionery group believing a white knight bidder may still emerge.

“We think a successful bid for Kraft may need to start with a 9 rather than 8,” said analyst Warren Ackerman at brokers Evolution Securities, who thinks a rival bidding team of Nestle NESN.VX and Hershey (HSY.N) may still emerge for Cadbury.

Swiss Nestle and Hershey, a U.S. chocolate maker, report earnings on Thursday.

Martin Deboo at Investec Securities pointed out that Cadbury upgraded its margin forecast helped by lower marketing spend as a percentage of sales compared to its previous third quarter, while others said its volumes fell 3 percent meaning Cadbury had to rely on price rises for its 7 percent sale increase.

Most analysts had expected Cadbury to report 4 percent third-quarter sales growth and hold its 2009 sales target at the lower end of its 4 to 6 percent medium-term range and either hold or slightly nudge up its annual margin target. ($1=.6088 Pound) (Additional reporting by Bradley Dorfman in Chicago) (Editing by David Cowell and Sitaraman Shankar)

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