Cadbury finds bid hard to swallow

Published on Sunday 13 September 2009 19:18

KRAFT'S bid for Cadbury is expected to turn hostile after the UK confectionery giant published a letter this morning branding its US suitor a "low-growth conglomerate".

In a stinging riposte released to the stock exchange today, Cadbury chairman Roger Carr dismissed the "unappealing prospect" of Cadbury being absorbed into "Kraft's low-growth, conglomerate business model".

The letter, addressed to Kraft chief executive Irene Rosenfeld, detailed Carr's opposition to Kraft's 10.2 billion bid. It said the offer "fundamentally" undervalued the business and was of "uncertain value" for Cadbury's shareholders.

Carr's letter opens the door for a further bid from Kraft and analysts have already speculated that the firm might need to up its 745p-a-share offer to at least 800p – equivalent to 11bn – to secure a Cadbury deal.

But Cadbury, founded by John Cadbury, a Quaker, in 1824, is also thought to have attracted the attention of other rivals, such as Hershey, Nestle and Mars.

Kraft is understood to be in discussions with Citigroup and Deutsche Bank over a short-term bridging loan to finance the acquisition, a sign that the US group's bid is likely to turn hostile.

The US group – which owns brands including Dairylea, Kenco coffee and Terry's Chocolate Orange – made the unsolicited cash-and-shares approach to Cadbury last week.

But while Cadbury's shares soared 36.5 per cent in the past week, Kraft's stock has slumped by about 7 per cent, reducing the value of the proposal.

Carr emphasised Cadbury's position as a focused confectionery company in the letter, having spun off its US beverages business last year.

He said: "Under your proposal, Cadbury would be absorbed into Kraft's low-growth, conglomerate business model, an unappealing prospect that contrasts sharply with our strategy to be a pure play confectionery company."

Kraft, Carr said, has a "considerably less focused business mix and historically lower growth" than his firm. He added: "In addition, the proposal is of uncertain value for Cadbury shareholders as underlined by the movement in the Kraft share price since your announcement."

When unveiling its bid last Monday, Kraft said it was "eager to build upon Cadbury's iconic brands and strong British heritage". Kraft also expressed an interest in keeping open Cadbury's Somerdale facility near Bristol, scheduled to close next year, while investing in its Bournville factory near Birmingham.

Kraft has said a deal between its firm and Cadbury would create a "global powerhouse" with annual sales of about $50bn (30.5bn). But ratings agencies have raised concerns that a deal would add to Kraft's debts.

A spokeswoman for Kraft said the company had no comment on Carr's letter. Rosenfeld told an investor conference last week that combining the firms would give Kraft a boost in developing countries such as India and Mexico where the UK confectioner has a strong presence.