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Kraft Bids Low and Plays Long in Cadbury Takeover

So far, so predictable -- Kraft came in with a bid for Cadbury, and Cadbury "emphatically rejected" it, with Cadbury's chairman calling the offer "derisory". Kraft will need to sweeten its bid to turn shareholders' heads. Kraft's offer today valued the UK chocolate company at £9.8bn or 717p a share, lower than its initial £10.2bn offer (and fluctuating because of falls in Kraft's share price). Cadbury's share price dipped, but rebounded later today.

So why has Kraft come in so low? There are currently no other bidders in the frame, so arguably, Kraft can afford to play the long game, as the FT argues. Rumours of rival bids from Hershey, Nestle and PepsiCo turned out to be unfounded.

Was Kraft's bid influenced by its largest shareholder, Warren Buffett of Berkshire Hathaway? Buffett was quiet about the initial bid for Cadbury. "Any time you're in a takeover, the animal spirits run high and all of that, but Kraft has the disadvantage of using an undervalued stock," he said in September. Famously canny, he later deemed Kraft's offer as "pretty full" according to the Wall Street Journal.
Some analysts have reacted with a collective shrug -- "we see this as a non-event", said one -- as it could be the beginning of a three-month fencing match (courtship's a little too courteous for the language flying between target and bidder).

Kraft now has 60 days to win over at least 50 percent of investors, but 28 days to post an official offer document to Cadbury. What it needs to offer to win over shareholders is up in the air -- analysts are hovering around 780p to 800p at most. Can Kraft afford it?

Other reactions:
Critical Eye asks: will consumers really notice if Kraft keeps the Cadbury brand? US buyers say yes -- UK-made Cadbury chocolate just tastes different.

The Kraft deal may be Cadbury fans' last hope. According to Dave Harvey, the US company promised to save it from relocation to Poland.

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