Soaring sales at Cadbury put Kraft on the back foot

Hugo Duncan
21 Oct 2009

Cadbury today bolstered its defence against a proposed £10.2 billion takeover by Kraft Foods by forecasting stellar results for the year.

Todd Stitzer, chief executive of the UK chocolate maker, said revenues and profits will be higher than expected in a third-quarter trading report.

He also described Cadbury as “a very strong, independent, standalone business”, as he stepped up pressure on its US rival to come up with a knockout bid to win the takeover battle.

Chairman Roger Carr looked to a bright future for Cadbury “as a pure-play, standalone confectionary business” and shares rose 2½p to 802p.

Kraft stunned the City last month when it launched a £10.2 billion takeover offer for Cadbury.

The offer was immediately rejected by Cadbury and the UK Takeover Panel gave Kraft a deadline of 9 November to “put up or shut up”.

Today's update from Cadbury was seen as a key plank of its defence against Kraft and did not disappoint.

It reported a 7% rise in revenues for the third quarter, beating even the most bullish forecasts, and raised its sales growth target for the full year from 4% to 5%. Cadbury also upped its margin growth target and boasted of its “recession resilient” credentials which have seen business improve throughout the year.

Stitzer said: “These are excellent results. We have great momentum in our business and our confectionary strategy continues to yield benefits beyond expectations.

“In the third quarter we have delivered growth in every category and every business.

“This is a message to the financial community that our business is robust. It is a very strong, independent, standalone business with opportunites to grow revenues and margins.”

Analysts believe Kraft, which was being advised by legendary Wall Street dealmaker Bruce Wasserstein before his death last week, will wait until after its own third-quarter update on 3 November before raising its bid.

Many believe it will have to table an offer of 850p a share to win the backing of the Cadbury board and not turn to a hostile bid.

Graham Jones, an analyst at Panmure Gordon, said the current offer of 745p a share was “ludicrously low”.

Warren Ackerman of Evolution Securities said: “These numbers were never going to be disappointing, but the strength in the third quarter is exceptional. When or if Kraft formalises the offer, it may need to start with a nine rather than an eight.”

Cadbury's third quarter was boosted by a 10% rise in UK sales. Total chocolate sales, which accounted for 45% of worldwide revenues in the first nine months of the year, were up 7% while gum sales rose 4% and candy 11%.

The 7% rise in third-quarter revenues followed a 6% rise in the second quarter and 2% rise in the first quarter. It put revenue growth for the year so far at a better-than-expected 5%.