'Cheapskate' Kraft offers only 717p for Cadbury

Simon English
09.11.09

Kraft today formally launched a £9.8 billion takeover bid for Cadbury, taking the fight to acquire the business directly to shareholders.

Cadbury immediately rejected the offer as insufficient, and believes it has sufficient support from investors to fend off the deal.

Kraft chief executive Irene Rosenfeld said: “We remain convinced of the strategic merits for both companies of combining Kraft Foods and Cadbury.

“We believe that our proposal offers the best immediate and long-term value for Cadbury's shareholders and for the company itself with any other option currently available, including Cadbury remaining independent.”

Its initial, informal bid in September was priced at 300p in cash and 0.2589 new Kraft shares for every Cadbury share.

Today's bid is on the same terms, indicating that Kraft is willing to play a long-term game to secure its prize.

The value of the bid then was £10.2 billion, or 745p a share. At the moment the same deal is worth 717p.

Kraft will hope that Cadbury shares fall and its own shares rise in the coming weeks. Its bet is that with no rival bidders emerging and the rally in the UK stock market showing signs of losing momentum, its offer will look increasingly attractive.

Cadbury stock did indeed slip as the lowball price became public this afternoon, but it is still ahead of the offer terms. That indicates the City expects Kraft to return later with a better deal. The shares slipped 6½p to 751½p.

“This is a cheapskate, lowball offer and Cadbury will not accept it. If they want to be taken seriously they'll have to bid more than 800p,” said Manoj Ladwa, senior trader at ETX Capital.

Kraft's next move could be to increase the cash element of the proposal but can see no point in going for a knockout bid just yet.

Cadbury shareholders would probably back a bid of 850p a share. Kraft is hoping it can secure a deal for less than that, and is under pressure from its own investors — including Warren Buffett — not to overpay.

Reports suggest that Cadbury's chairman Roger Carr sees 820p as the minimum level at which meaningful talks could be held. But even at that price it might turn down a deal having been openly critical of Kraft's strategy and style.

Over the weekend Cadbury was again dismissive, branding Kraft a “no-growth conglomerate” because of recent stodgy results. “While Kraft might need Cadbury, Cadbury certainly does not need Kraft,” said a spokesman. Some fear Cadbury's identity would be lost in a bigger group.

Marketing expert Allyson Stewart-Allen says: “One question is whether Kraft will make the most of Cadbury's British heritage and brand story or attempt to make it a bland international one size fits all' indulgence.”

The US chocolate market is dominated by Hershey, Kraft's arch-rival.

There has also been opposition from members of the Cadbury family with one descendant, Felicity Loudon, describing Kraft as purveyors of inferior goods, characterising it as “plastic cheese on hamburgers”.

John Cadbury, a Quaker, first opened his shop in Birmingham in 1824, selling tea, coffee and hot chocolate. Dairy Milk was introduced in 1905 and Milk Tray came 10 years later.