Cadbury set to accept £11.5bn offer from Kraft

Sweetened deal likely to end six-month bid battle of confectionery giants
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The Independent Online

Cadbury was locked in talks with Kraft last night about a revised offer from the US food giant that could be unveiled as early as this morning.

The offer, set to be between 840p-850p a share, values the UK confectioner at £11.5bn-£11.7bn, and is expected to be backed by Cadbury's board. Kraft's last bid, worth 771p a share, or £10.5bn, was dismissed by Cadbury's management as "derisory" earlier this month.

Irene Rosenfeld, the chief executive of Kraft, flew into London over the weekend for the talks. While Cadbury, headed by chief executive Todd Stitzer and its chairman Roger Carr, have mounted a robust defence to the Kraft bid, both have made it clear that they are not opposed to a deal at any price.

An agreed deal is likely to end the bitter six-month bid battle triggered by Kraft's initial approach for the UK group in August. However, trade unions have warned that a succesful bid by the US group could put up to 7,000 jobs at Cadbury itself – and another 20,000 jobs in the supply chain – at risk. Some investors in Cadbury, however, were still holding out for an offer of at least 900p a share yesterday. Standard Life, which owns less than one per cent of Cadbury, said it would reject any bid of less than 900p a share, which would make any offer worth at least £12.4bn.

David Cummings, the head of UK equities at Standard Life Investments, said: "If Kraft wants to get Cadbury they need to pay a full price to get long term shareholders on side, and the price would have to be, in my view, above £9 a share."

There is still the prospect of a counter-bid from the US chocolate group Hershey, even though its potential bid partner, Ferrero of Italy, pulled out last week. Hershey was unavailable for comment yesterday, due to a public holiday in the US. Mr Cumming added: "If there is a competition you could get a higher price than that, but the price in the press I noticed at the weekend talking about £8 to £8.50 – that would not secure support form companies like ourselves.

"Kraft needs Cadbury to accelerate its growth into higher-growth product categories like gum and chocolate but they also need to diversify into faster growing regions like South America and Asia, and Cadbury has got a strong position there."

Mark Burgess, the head of equities at Legal and General Investment Management, which owns more than five per cent of Cadbury, said: "We continue to believe the current Kraft bid does not reflect the long-term value offered by the company on a standalone basis."

Franklin Mutual, the largest investor, also said the offer was too low. Yet some analysts believe a bid of 850p per share could interest short-term investors such as the hedge funds.

Other significant shareholders have refused to be drawn into comment- ing on the takeover. However, a Bloomberg survey found 11 per cent of investors were holding out for a bid over 900p. Last week, Cadbury implored its backers not to let Kraft "steal" the company. Mr Stitzer, has since backed some analysts who suggest the current management could lift the share price to over £10.

Carl Short, an analyst at Standard & Poor's Equity Research, said the takeover was approaching its "end game", adding: "It is finely poised. Kraft has to pitch the offer right. They don't want to cut it too fine and risk it being rejected or leaving the door open for a counter bid.

"At the same time, [Kraft investor] Warren Buffett has been vocal that Kraft should not overpay."

Kraft's takeover bid has also been subject to political scrutiny, not least because of the outcry four years ago when the US firm closed the Terry's chocolate factory in York, and the latest bid is expected to contain specific assurances on UK jobs. Lord Mandelson, the Business Secretary, warned Kraft against "asset stripping" when it tabled its first formal bid in December.

"Don't think you can come here a turn around a short-term profit and make a quick buck," he said at the time. "I am watching this very carefully, not because I can stop it or deflect it, but I am saying respect our companies, respect our workforce, respect our goods and look to the future."