Cadbury Sour on Kraft's $16.7B Offer

(AP)  Kraft Foods Inc. on Monday proposed a 10.2 billion pounds ($16.7 billion) takeover of Cadbury PLC, but the offer was immediately rejected by the British maker of chocolate, gum and candy.

Cadbury said the offer undervalued the company, and expressed confidence in its "standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope."

Kraft was undeterred, however, and said it would continue to seek a transaction which Cadbury's board could support. Cadbury shares shot up 38 percent to 785 pence on the London Stock Exchange.

Kraft, whose brands include Velveeta cheese product and Oreo cookies, said it had proposed paying 300 pence in cash and 0.2589 new Kraft Foods shares per Cadbury share, valuing Cadbury shares at 745 pence.

That represents a 31 percent premium over Cadbury's closing share price of 568 pence on Friday.

Graham Jones, analyst at Panmure Gordon & Co., recommended that shareholders hold out for at least 800 pence a share.

"A key question is whether there is a counter bid, most likely from a Nestle-led consortium," Jones said. "However, we see the most likely scenario being Kraft being successful on improved terms."

Jeremy Batstone-Carr at Charles Stanley & Co. said it might take more than 800 pence.

"Note that the Kraft offer values Cadbury on less than 2 times sales, significantly lower than the 2.3 times sales it paid for Danone's biscuit operations or the ... 3.7 times sales paid by Mars for Wrigley," Batstone-Carr said.

Cadbury, which makes Cadbury chocolates, Trident and Dentyne gum and Halls and Bassett's candies, did not immediately comment.

Kraft, based in Northfield, Illinois, said the combination would create "a global powerhouse in snacks, confectionery and quick meals," with leading positions in developing markets including India, Mexico, Brazil, China and Russia.

"This proposed combination is about growth. We are eager to build upon Cadbury's iconic brands and strong British heritage through increased investment and innovation," said Irene B. Rosenfeld, chairman and CEO of Kraft Foods.

Cadbury nearly tripled its net profit in the first half of the year as the company pocketed a big gain from the sale of its beverage business and chocolate consumption rose.

Net profit in the first half was 313 million pounds, compared to 113 million pounds during the same period a year earlier. Revenue was up 13 percent to 2.8 billion pounds, or up 4 percent on a constant currency basis.

The company, formerly Cadbury Schweppes, demerged its Americas Beverages business last year and disposed of its Australia Beverages business to Asahi Breweries of Japan in April.

Kraft's second-quarter profit rose 11 percent to $827 million, though revenue fell 5.9 percent to $10.16 billion as the dollar's strength weighed on international sales.

[afmcalax]

The world does not need another anti-competitive monopolistic company. Have we not learned from the past year and a half that huge conglomorates are only good for CEO bonuses and the Wall Street bankers that broker them. Society and customers will get nothing out of this takeover except for higher priced snacks of lesser quality. That is American capitalism at work. Use your profits by selling mediocre high priced products and then buy-out smaller companies that make excellent quality products. If you cannot compete; buy out your competition. These worthless mergers have to stop! When are the anti-trust laws ever going to be enforced?

[ajapierce]

They need to stop merging these mega companies, they just drive up the prices of products until no one can afford them anymore. Then we have to buy from more no-name brands which may or may not be safe.

Isn't anyone learning from the Banks failures of the "To Big To Fail"??? Can we say that the same thing is going to happen again?

[opleez]

Good for Cadbury!!! I once worked at a Cadbury chocolate plant and loved it! I also worked for a company that was taken over by a food giant. They screwed over the owner and ruined the company and is only focused on the "numbers". The first thing they wanted to do is compromise ingredient quality and integrity to boost profits. Quality of the product has also dropped. They took as successful company and turned it into another "cash cow" with a lower quality products at a premium price. They claimed that our customers weren't smart enough to know what they were buying! Can you tell I hate those guys?? I'm glad Cadbury turned down the sale. I wish more companies would follow their example. Sometimes the money isn't worth the price.

[dsnj1-2009]

Cadbury is incredible chocolate, I tried it when I was in the UK. It seems like whenever a US company starts to get involved, they change formulation and make food less healthy, and add so many preservatives, that Americans ask "why are there probelms with obesity in our kids"?. I hope Cadbury stays with the original formulation.