Cadbury upgrades forecasts to fend off Kraft

Dairy Milk maker hits out at 'contemptuous' and 'derisory' bid by Kraft
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The Independent Online

Cadbury launched a forceful defence against the US food giant Kraft's £9.8bn hostile bid for the Dairy Milk maker, as it unveiled ambitious upgraded growth targets on margins for the next four years.

Alongside a pre-close trading update yesterday, the British confectioner also revealed that unnamed rival suitors, thought to include Hershey and Ferrero, had expressed interest in a potential tie-up, but said no party had yet come up with a "fully financed, value proposition".

Roger Carr, the chairman of Cadbury, attacked the hostile bid by the "low-growth conglomerate" of Kraft as "contemptuous of both our inherent value and our shareholders".

Kraft went direct to investors with an unchanged offer of 0.2589 of its own shares and 300p in cash for each Cadbury share last month. The offer valued Cadbury at 728p a share in early trade in the US yesterday, while Cadbury shares closed at 795p. Because of the fall in Kraft's shares and currency movements, it is below the 745p a share indicative offer of £10.2bn made by Kraft in early September.

Mr Carr said: "It offers nothing that is commercially appealing or appropriately rewarding – it is a blatant and opportunistic attempt to acquire the right business at the wrong price." He added that Cadbury must not be "stolen".

City analysts believe Cadbury would consider engaging with Kraft if it came up with a bid higher than 800p, although some believe it may take a price of up to 950p.

Todd Stitzer, the chief executive of Cadbury, said: "It is the concept of taking what is a fast-moving sports car and sticking it into a four-door sedan in the slow lane of traffic."

Cadbury, which also makes Trident Gum, Halls sweets and Wispa chocolate bars, said its upgraded profits forecasts were not a "knee-jerk" reaction to the Kraft bid. Cadbury revised upwards its revenue growth targets to between 5 per cent and 7 per cent a year, up from guidance of 5 per cent in 2009.

It upgraded its operating margins to be between 16 per cent and 18 per cent by 2013, up from at least 13.3 per cent this year. Further savings from its Vision into Action programme will come from reducing its number of packaging and food flavour suppliers and making supply chain more efficient. It also plans to generate free cashflow of £700m by 2013. Martin Deboo, an analyst at Investec, said: "There is no doubt they are ambitious targets."

The confectioner said its fourth-quarter trading was "good" and in line with previous guidance. However, Mr Stitzer said trading conditions in Europe remained challenging, and Cadbury's growth rate in the UK had "eased" as it comes up against a strong fourth quarter last year, which coincided with the relaunch of the Wispa.

But Cadbury cited an "excellent performance" in its key emerging markets, particularly South America and India, as well as good sales in its US chewing gum business and at Halls, which has benefited from a "strong cough-cold season". Investec forecasts a jump in pre-tax profits of more than a third, to £723m in 2009.

Mr Stitzer said Cadbury's emerging markets business had "almost doubled" in size from less than 20 per cent of turnover in 2002 to about 38 per cent today. A further acceleration to nearly half its business is expected by the end of 2013.

Asked if the board had held talks with Hershey and Ferrero, Mr Carr said: "We have told them very clearly what the rules of the game are, but until they come forward ... with something that meets those criteria, then there is no point in getting into conversations."

Both Hershey, which licenses Cadbury chocolate in the US, and Ferrero said they were considering their positions regarding Cadbury last month.

A key argument in Cadbury's defence against Kraft is that its shares and margins have been falling for a number of years. It said the US food giant's share price of $27 was 14 per cent below its flotation price of $31 in 2001.

A source close to Kraft said: "The Cadbury defence is all about not jam tomorrow but jam in 2013."