Cadbury Sour on Kraft's $16.7B Offer

Cadbury rejected a takeover bid by Kraft Foods. candy sweets chocolate
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.