Kraft sweetens Cadbury deal after agreeing surprise sale to rival Nestlé

DRAMA unfolded in the takeover battle for Cadbury yesterday as US-based Kraft Foods sweetened its $16.4 billion (£10.3bn) hostile cash-and-shares bid with extra money as Swiss food giant Nestlé ruled itself out of the running.

In a surprise twist, the new cash portion of 360p will be funded from another deal unveiled yesterday, whereby Nestl will instead buy Kraft's North American frozen pizza business for $3.7bn (2.3bn).

And, in a fast-moving day, Kraft's biggest shareholder, legendary Warren Buffett, whose Berkshire Hathaway owns 9.4 per cent, warned the group against over-paying for Cadbury.

Berkshire said it had voted against Kraft's current proposal to authorise the issue of up to 370 million shares for the bid, but could reverse to a "yes" vote, depending on the final offer's details.

Berkshire said it was worried the proposal would give Kraft a "blank cheque", allowing it to change its offer for Cadbury.

"And we worry very much that, indeed, there will be an additional change from the revision announced this morning," Berkshire said.

Kraft posted a revised cash-and-shares bid for Cadbury, the British confectionery major, that adds 60p per share in cash to the offer, but reduces the stock component equivalently.

The British group's shares fell 3 per cent to 779p after Nestl said it did "not intend to make, or participate in, a formal offer" for the British company.

That compares with the Kraft cash-and-shares offer valuing Cadbury at 743p.

Jeremy Batstone-Carr, at broker Charles Stanley, said: "Nestle's decision effectively leaves Kraft as the overwhelming front-runner. (It] removes Ferrero and Hershey from the field as competitive forces."

US-based Hershey and Italy's Ferrero expressed interest in bidding for Cadbury in November but they need to come up with fully financed bids by 23 January.

Analysts had said Nestl might team up with Hershey, while Ferrero was seen as needing financial help. Analyst Martin Deboo, at Investec Securities, said: "We viewed Nestl as holding the key to any competitive auction in that their participation would have liberated an otherwise financing and ambition-constrained Hershey and/or Ferrero to make a run."

But a Cadbury spokesman said: "Kraft has again missed the point. Despite this tinkering, the value of the offer remains unchanged and derisory with less than half the consideration in cash."

Nestl's sale of a majority stake in eyecare group Alcon to Novartis on Monday had left it with plenty of cash for acquisitions, which had fuelled speculation it could enter the fray for Cadbury.