Kraft poised to up Cadbury bid

KRAFT Foods chief executive Irene Rosenfeld is expected to raise the US company's $17.1 billion (£10.5bn) bid for Cadbury by its Tuesday deadline although it is likely to fall short of shareholders' expectations.

Rosenfeld is forecast to sweeten the offer to 820p a share, from a current offer valued at about 771p, considerably below the 850p level that some investors have signalled they want.

Rosenfeld is limited in her ability to raise the bid, particularly after a public warning by top Kraft shareholder and tycoon Warren Buffett against overpaying. But she is loath to risk coming in too low and facing outright rejection from Cadbury holders, or lose a deal to an eleventh-hour bid by potential rival Hershey.

The Wall Street Journal reported Hershey has the financial muscle to top Kraft's offer and is likely to make a bid this week of at least 800p to 820p, or $17.9bn.

A new bid by Kraft would be the final move in Rosenfeld's four-month quest for Cadbury, now viewed as a referendum on her tenure at Kraft.

"Her seat is a lot hotter than it used to be, regardless of whether they get Cadbury bought or not," Edward Jones analyst Matt Arnold said.

A New York hedge fund manager said: "If the final offer is worth 800p, I think there is a 50 per cent chance it gets done. At that level it's the flip of the coin. Every 10p on top is an extra 5 per cent probability that the deal gets done."

The investor added that Kraft should include a cushion in its final bid in case its stock falls on concerns over plans to issue up to 370 million shares to fund a deal.

"If the bid is 830p, I want to be sure it is still worth that much on the day I tender," he said. Investors have until 2 February to respond to the Kraft bid.

If Kraft fails to win Cadbury, Rosenfeld will have spent millions of dollars on advisers. She will need to show the company can boost sales and profits without Cadbury and without a growing pizza business whose recent sale was meant to fund a bid.

DA Davidson analyst Tim Ramey wrote a scathing note to his clients this week suggesting Carlos Gutierrez, a former Kellogg chief executive and US secretary of commerce, might run Kraft instead.

"Given the high-profile rebuke by No 1 shareholder Warren Buffett last week, we wonder how the board feels about the leadership of Irene Rosenfeld," Ramey said.

Rosenfeld went to London last week to listen to Cadbury investors, believed to have included Standard Life and Scottish Widows Investment Partnership, and gauge their sentiment on the bid.