Cadbury points to rival interest as it rejects Kraft

LONDON (Reuters) - UK chocolatier Cadbury CBRY.L teased shareholders with the prospect of rival bids and promised bigger dividends and stronger growth as it again knocked back a hostile 10 billion pound ($16.2 billion) offer from Kraft Foods KFT.N.

The Cadbury factory is seen behind a fence in Bournville, central England, November 9, 2009. REUTERS/Darren Staples

Cadbury chairman Roger Carr said Hershey HSY.N and Italy's Ferrero had both indicated they were contemplating bids, adding serious negotiations would only start if a compelling and fully-financed offer emerged.

“At the moment nothing like this has been received,” he told reporters on Monday.

The Dairy Milk chocolate maker was issuing its defense document against Kraft’s takeover bid, telling shareholders not to let the U.S. food group “steal” Cadbury and kicking off a seven-week fight for independence.

Analysts said Cadbury’s case for its value as a standalone company did not change their view of how much farther Kraft would need to raise its offer to persuade shareholders.

“This is not enough to squeeze a massively higher offer from Kraft in our view,” James Edwardes Jones at brokers Execution said. “It is difficult to see why Kraft needs to pay up much more than 800p.”

British and Irish Cadbury confectionery workers are planning their own defense against the Kraft takeover campaign. The assistant general secretary of Britain’s largest trade union Unite Len McCluskey is set to launch the “Keep Cadbury Independent” campaign on Tuesday with local members of Parliament Stephen McCabe and Lynne Jones from the ruling Labour Party at Cadbury’s historic Bournville home in Birmingham.

They will argue that the Kraft takeover will result in job losses and pay cuts.

Shares in Cadbury closed up 0.57 percent at 793 pence, compared to Kraft’s hostile bid worth 729 pence. Many analysts believe Kraft will need to pay 820-850 pence to win Cadbury.

Shares in Kraft were up 0.8 percent at $27.


A Kraft-Cadbury deal would create the world’s biggest confectionery group overtaking Mars-Wrigley bringing Cadbury’s chocolate and Trident gum together with Kraft’s Milka, Toblerone, Cote D’Or, Terry’s and Suchard chocolate brands.

Cadbury investors have looked to a rival bidder to emerge to challenge Kraft. Hershey, one of its most likely suitors, has yet to show it is willing to take on the debt required to launch a credible bid for a company more than twice its size.

“It is not part of our defense to run around looking for a white knight,” said Carr, when asked if Cadbury had held talks with Ferrero or Hershey. “They have to come forward with fully financed offers that are deliverable to trigger talks.”

Cadbury also dismissed the notion it would pursue Hershey as part of its defense, saying the company would not choose to pour money into the U.S. market.

“We’ve said if we want to expand, we’d favor spending money in growth markets where there are high returns,” Carr said.

Cadbury raised its underlying annual sales growth target to between 5 and 7 percent from its previous 4 to 6 percent range. It sees operating margins by 2013 in a range of 16 to 18 percent after looking for good mid-teens margins by 2011, compared with 11.9 percent in 2008.

Analysts said there were few surprises in Cadbury’s defense with its 2009 outlook unchanged, while saying it could hit higher margins without further jobs cuts or factory closures and its higher sales growth would rely on emerging markets.

A source close to Kraft added that there was nothing in the defense documents that would make the US company change its position.

“It is not even jam tomorrow. It is jam in four years time,” the source said, referring to the new targets.

Kraft said it still believed its offer was in the best interest of shareholders and that a combination of the two companies would create “significant growth opportunity.

Credit Suisse analyst Alex Molloy said: “Assuming the group were to achieve these new targets, Cadbury might be worth something like 675p per share on fundamentals. We still believe Kraft needs to offer closer to 850p to win the day.”

Cadbury also looked to double-digit percentage rises in dividend payouts from 2010 onward, and a higher rate of converting operating profits into cash flow from 2010. In 2008 Cadbury’s dividend increased 6 percent to 16.4 pence a share.

Cadbury held its 2009 forecasts for a 5 percent rise in underlying sales growth and a 135 basis point rise in margins.

Kraft has declined to raise its bid from the terms first disclosed on September 7 with 300p in cash and the rest in new Kraft shares, determined not to overpay and convinced no rival bidder will emerge.

Under UK takeover rules, Cadbury shareholders have until February 2 to either accept or reject Kraft’s offer.

($1=.6057 Pound)

Editing by Paul Hoskins, Hans Peters, Sharon Lindores and Carol Bishopric