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Cadbury frets over stakes built up by arbitrageurs
December 18, 2009 / 4:23 PM / 8 years ago

Cadbury frets over stakes built up by arbitrageurs

* 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 (Reuters) - 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 companies involved.

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. [ID:nGEE5BA1YP].

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:

For Global Investing: here Editing by Simon Jessop and Andrew Callus

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