Tuesday, Nov. 10, 2009

Kraft's $16.4 billion Cadbury bid starts takeover struggle

NEW YORK -- Kraft Foods has gone hostile in its bid to buy Cadbury but didn't sweeten its first bid, drawing an immediate rejection from the British candy maker in what is likely to be a lengthy takeover struggle.

Taking the same offer directly to Cadbury shareholders likely means that Kraft is betting no competing bids will emerge for the maker of Dairy Milk and Creme Eggs. The early gambit also leaves the company room to take the bid higher.

Kraft made the $16.4 billion offer just hours before a Monday deadline imposed by Britain's takeover law that required the company to make a formal offer or back off for six months. Kraft now has 28 days to file a prospectus, which will then trigger more deadlines that could last months.

The maker of Oreo cookies, Oscar Mayer meats and Nabisco crackers maintained its offer of 300 pence in cash and 0.2589 new Kraft shares. But the deal's value fell from its original $16.7 billion because Kraft's shares have fallen since the first offer was announced in September.

Cadbury Chairman Roger Carr offered a blunt assessment of the bid: "Kraft's offer does not come remotely close to reflecting the true value of our company."

Now it's now up to Cadbury's shareholders to decide.

Most likely, they'll hold out for a higher offer, analysts say.

"Kraft probably does need Cadbury more than Cadbury needs Kraft," wrote Jeremy Batstone-Carr, an analyst with Charles Stanley.

He said Kraft will need to offer up to 850 pence per share, or its equivalent including more cash. Kraft's offer is worth only 709 pence per share, based on its share price and exchange rates Monday afternoon.

Cadbury shares finished trading up 3 pence to 761 pence on the London Stock Exchange after falling earlier in the day. Kraft shares fell 32 cents to $26.46 in afternoon trading.

Some had speculated that a bidding war could ensue when Kraft's initial offer was revealed in September, with a pairing of Hershey Co. and the world's biggest food maker, Nestle, as a possible contender. Dutch consumer goods group Unilever NV publicly ruled itself out last week.

"Kraft hopes the reality that a competitive bidder will not step forward and that this is the 'best deal in town' will persuade Cadbury shareholders to vote in favor of this transaction," said Christopher Growe, an analyst with Stifel Nicolaus & Co.

A combination of the two would create a company with at least $50 billion in annual revenue. Kraft is the largest food company in the U.S. and No. 2 worldwide to Nestle, which would keep its No. 1 position even if Kraft adds Cadbury.