Kraft and Cadbury trade blows over £10bn offer
Kraft hints that it will not raise offer price beyond its formal bid last month
Wednesday 16 December 2009
The war of words between Cadbury and Kraft escalated yesterday, following the Dairy Milk maker's fierce defence on Monday against the US food giant's £10bn hostile bid.
Kraft's chief executive, Irene Rosenfeld, also strongly hinted that it would not raise its offer price by vowing to "continue to maintain a disciplined approach" towards the acquisition.
The maker of Oreo cookies raised a series of questions over the upgraded targets – notably on margin, cash flow and revenue growth – trumpeted by Cadbury two days ago, as well as lambasting the lack of information on its prospects for 2010, such as on earnings. Ms Rosenfeld said: "We have heard nothing from Cadbury that surprises us."
Kraft reiterated that the offer price, which valued Cadbury at 728p a share, or £10bn, yesterday, represented a substantial premium to the unaffected share price of the Creme Egg maker before City speculation emerged in the summer. Kraft went hostile with an unchanged offer of 0.2589 of its own shares and 300p in cash for each Cadbury share last month. Owing to share price and currency fluctuations, this was below Kraft's 745p a share approach on 7 September. Cadbury shares closed at791.5p.
A Cadbury spokesman said: "Kraft seem to have run out of ideas. Neither our shareholders nor the market as a whole seem to have had any problems understanding the detail in our business plan or the defence we presented yesterday."
He added: "No smoke and mirrors will change the fact that Kraft's offer remains derisory. We will continue to communicate directly with our shareholders about the significant value in their business as we have throughout this unwelcome approach."
Cadbury shareholders have until 2 February to decide whether to accept Kraft's offer. In addition to double-digit dividend growth, Cadbury upgraded its guidance on revenue growth, operating margins and cash flow from 2010 to 2013. But Kraft said that Cadbury's had "never before achieved" these long-term targets. For the three-year period, Cadbury forecast revenue growth of between 5 per cent and 7 per cent a year, compared with guidance of 5 per cent for this year.
Kraft urged shareholders to question what price rises – in a low-inflation environment – Cadbury was assuming, given that its revenue growth in the first three quarters of 2009 was driven by price hikes and a greater proportion of higher-priced products in its mix.
The British confectioner also forecast operating margins of between 16 per cent and 18 per cent by 2013, ahead of plans to deliver "mid-teen" margins by 2011. But Kraft queried how it could hit these targets with only a 25 to 50 basis point improvement coming from business efficiencies, implying further restructuring from its Vision into Action programme. Nicolas Ceron, an analyst at Numis, said: "We believe the opportunity to cut costs, notably by closing factories, remains high within the business and hence are convinced that this is an achievable [margin] target."
Kraft also said that input costs, such as cocoa, are expected to "remain high", and questioned why Cadbury had not provided guidance on input costs into next year on Monday.
Jeremy Batstone-Carr, at Charles Stanley, said that Cadbury had provided "considerable detail" in its defence document and that it can comfortably address Kraft's arguments. For instance, he explained that the maker of Green & Black's raised revenue targets are predicated on continued strong growth in emerging markets, including Brazil and India, which have delivered growth of about 12 per cent a year over the last two years.
On Monday, Cadbury said unnamed rival suitors – believed to include the US confectionery firm Hershey – have expressed an interest in a tie-up, but have not yet come up with a "fully financed" offer. Hershey and Ferrero, the Italian maker of Rocher, are considering their positions regarding Cadbury.
The board of Cadbury is thought to be willing to engage with Kraft at a price above 800p. But Mr Batstone-Carr said: "In the absence of a rival offer... we believe that the prevailing balance of probability strongly favours Cadbury's continued independence."
- 2 Tower Bridge glass walkway 'smashed' by night-time visitor dropping bottle of beer
- 4 Woman opens professional cuddling shop – gets 10,000 customers in first week
- 5 Grayson Perry: London needs affordable housing because 'rich people don't create culture'
Kenya bus attack: Primary school head teacher plays dead to escape slaughter by Islamic extremists
Tower Bridge glass walkway 'smashed' by night-time visitor dropping bottle of beer
Anti-gay hate preacher accidentally tweets 4,000 followers cartoon clip of him 'confessing' to be a 'homosexual sodomite'
Woman opens professional cuddling shop – gets 10,000 customers in first week
Grayson Perry: London needs affordable housing because 'rich people don't create culture'
Rochester by-election: Ukip gains second MP as Tory defector Mark Reckless holds seat
'Beast of Bolsover' Dennis Skinner takes Ukip MP Mark Reckless to task moments after he is sworn in
Rochester by-election: Labour MP Emily Thornberry resigns after posting white van and England flags tweet
France 'blocks' Russian sailors from boarding a warship
Rochester aftermath: Sacking of Emily Thornberry will make work of Labour MPs '10 times harder'
Revealed: How the world gets rich – from privatising British public services
iJobs Money & Business
Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...
Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...
£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...