Cadbury dismisses 'derisory' Kraft bid

City analysts say 'patient' Kraft will have to bid more than £8 a share for Cadbury

Cadbury rejected a hostile £9.7bn takeover bid from the US food giant Kraft yesterday, labelling it "derisory" and "unattractive" and calling on its shareholders to turn it down.

The maker of Dairy Milk swiftly delivered its verdict after Kraft, the world's second-largest food group, made its formal cash-and-shares offer yesterday, as widely expected ahead of a 5pm "put up or shut up" deadline by the Takeover Panel.

Cadbury pointed out that the bid was about 5 per cent lower than the £10.2bn, or 745p a share, indicative offer its board rejected on 7 September, even though the terms of the offer were unchanged, because of the fall in Kraft's share price since then. Last week, Kraft posted a disappointing 5.7 per cent decline in revenues to $9.8bn. The maker of Oreo biscuits and Kenco coffee has offered 300p in cash and 0.2589 new Kraft shares for each Cadbury share, worth 709p a share by the time the London market closed yesterday.

It is the third largest hostile bid for a food company globally and the biggest unsolicited bid for a food company in UK corporate history.

Roger Carr, the chairman of Cadbury, said: "The board has emphatically rejected this derisory offer and has strengthened its resolve to ensure the true value of Cadbury is fully understood by all." He added: "Kraft's offer does not come remotely close to reflecting the true value of our company, and involves the unattractive prospect of the absorption of Cadbury into a low-growth conglomerate business model."

Kraft has 28 days to send an offer document to Cadbury's shareholders.

Irene Rosenfeld, the chairman and chief executive of Kraft, who has previously stuck to the line of maintaining financial discipline, said: "We remain convinced of the strategic merits for both companies of combining Kraft Foods and Cadbury. We believe that our proposal offers the best immediate and long-term value for Cadbury's shareholders and for the company itself compared with any other option currently available, including Cadbury remaining independent."

Yesterday, Cadbury's shares rose by 3p to 761p, valuing the confectionery company at £10.4bn. Kraft shares were down more than 1 per cent at $26.44 in New York yesterday afternoon.

While the 709p-a-share offer is lower than the previous bid, Kraft said the offer was more than a third higher than Cadbury's share price of 524p on 3 July 2009, "prior to analyst suggestions regarding potential sector consolidation".

Kraft said the offer valued Cadbury at a "fair and attractive" multiple of 13.9 times Cadbury's 2008 underlying Ebitda. But City analysts expect Kraft will have to bid up to 850p to convince Cadbury's shareholders and secure its prize.

Jeremy Batstone-Carr, at Charles Stanley, said: "We continue to believe that Kraft will need to offer up to 850p per share (or its equivalent including a raised cash component) in order to be more certain of success. Kraft probably does need Cadbury more than Cadbury needs Kraft, a reflection of the former's relatively pedestrian top-line performance over the past four quarters."

Martin Deboo, at Investec, said: "Kraft look to have opted for a long and patient siege over immediate shock and awe. We expect the bid to be raised, but struggle to reconcile an offer of much more than £8 with Kraft's published criteria." He added: "We think that Cadbury are holding plenty of cards, but will need to think hard about how they convince investors that their current robust progress is sustainable. We urge shareholders to sit tight and await events."

Last month, Cadbury boasted a 7 per cent increase in third-quarter sales, up from 4 per cent in the first half.

Yesterday, Mr Carr said: "Cadbury is an exceptional standalone business. It has strong iconic brands, a sharp category focus and an enviable geographic scope. Our successful financial delivery and strong business model reinforce the board's belief in both the strategy and prospects of Cadbury as an independent company."

Bank bonanza: Advisers set for $75m in fees

*As Kraft's takeover approach for Cadbury descends into a hostile scrap, the real winners so far look like the two companies' investment banking advisers, who are set to share more than $75m in fees if the deal goes through.

The Cadbury defence team, comprising Morgan Stanley, Goldman Sachs and UBS, will pick up an estimated $15.1m each, while Lazard, Citi and boutique adviser Centerview Partners, masterminding Kraft's bid, are set to pocket $10.8m.

The estimated earnings was pulled together by Freeman, an M&A consultancy firm, and Thomson Reuters, which estimate advisory fees on mergers and acquisitions. Those advising Kraft are likely to see their fees soar in the event of successfully sealing the takeover. Similarly a successful defence could see Cadbury's bankers boost their earnings.

This does not take into account the fees to the lawyers. Slaughter & May are acting as counsel to the target, while Kraft has called in Clifford Chance; Cravath, Swaine & Moore; Gibson Dunn & Crutcher and Arnold & Partner to advise. .........  Nick Clark

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