The second-largest investor in Cadbury yesterday criticised its management for accepting a £11.9bn bid from Kraft Foods, saying the US company's revised offer undervalued the British confectionery group.
Following a frenetic day that saw the bid revised three times on Sunday and talks carrying on until the early hours, Cadbury agreed to throw its weight behind a deal with Kraft that will end 186 years of independence.
Yet the company's second-largest shareholder, Legal & General, which has a stake of 5.11 per cent, said the final offer "fails to fully reflect the long term value of the company". It added: "We are disappointed management have recommended the offer for this iconic and unique British company."
L&G declined to say if it would vote against the takeover, which is still expected to pass because Kraft needs 50 per cent plus one vote of shareholder acceptances. Half of Cadbury's stock is held by US investors and 25 per cent by hedge funds.
Nevertheless, Robin Geffen, the managing director of Neptune Investment Management, which has a 0.3 per cent stake in Cadbury, said the deal was "bad for everyone" and that "we cannot bring ourselves to vote for this bid". He added: "Sadly, Cadbury's management won't fight on and too many large shareholders are focused on very short-term performance."
Standard Life Investments reversed its position of demanding 900p per share in the morning to back the board, but admitted "the achieved price is slightly light of our stated target". Cadbury's management had rejected the previous 771p-per-share bid as "derisory" but settled on 840p per share, plus a 10p-per-share dividend.
Irene Rosenfeld, the chairman and chief executive of Kraft, flew to London on Sunday to meet the Cadbury chairman, Roger Carr, at the Lanesborough Hotel in London and tabled an offer of 830p per share. He spoke to the board when she raised the bid to 840p, but held out until an extra 10p dividend was thrown in. The offer is a 50 per cent premium to Cadbury's closing price the day before Kraft first announced its approach in September.
Ms Rosenfeld admitted it had been "a very busy few days" as she unveiled the terms of the takeover, the sixth-largest mergers and acquisitions deal in the sector, according to Dealogic. The tie-up will create a food group with more than $50bn in revenues and brings its share of the global confectionery market to 15 per cent, equal with Mars.
Under the terms of the final offer, Cadbury shareholders will be entitled to 500p in cash for each share and 0.1874 of new Kraft shares. Added to this is the special dividend. Mr Carr said: "We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment Kraft Foods has made to our heritage, values and people throughout the world."
Jeremy Batstone-Carr, an analyst at Charles Stanley, was surprised by "how meekly" Cadbury gave in. He said: "Trading has improved markedly over the past six months and only last week Carr had confidently predicted that the company's share price could be [more than] £10 in due course."
The prospect of a counter-bid receded yesterday. The Takeover Panel has given Hershey and Ferrero until the morning of 25 January to announce a firm intention to bid. Kraft's chief financial officer, Timothy McLevish, said: "We feel confident we've put a fair bid on the table and would be surprised if there was a counter-bidder."
Mr Batstone-Carr said: "We view the chances of a higher approach from Hershey as limited, particularly so given the financial stretch required to get on terms with Kraft."
Cadbury would also have to pay a break fee of £117.7m if it switched its recommendation to a rival. Under the new deal, Kraft increased the proportion of cash and reduced the amount of shares it was to issue. Under stock market rules in the US, it no longer needs investor approval, including its largest shareholder Warren Buffet, to push ahead with the revised offer.
The group is looking for cost savings of $675m, over and above Cadbury's current cost-cutting programme, but Ms Rosenfeld sought to calm fears over Kraft's plans. "We expect to continue with a significant Cadbury presence in this market," she said. "We will continue to invest in Bournville and continue to operate Somerdale. We will be a net importer of jobs."
However, Mr Carr admitted that job losses were inevitable.
Chocolate pioneers: History of Cadbury
It began on Bull Street, Birmingham. John Cadbury, a former apprentice to a tea dealer, opened a grocer's store in 1824, selling everything from coffee to cocoa, but, in line with his pro-temperance views as a Quaker, no alcohol. In 1847, John's brother, Benjamin, came on board and Cadbury Brothers was born. John's son George, in partnership with brother Richard, took over the company in 1861 and, in 1866, was behind the launch of Cocoa Essence, the first unadulterated cocoa in the UK.
George also led the move to Bournville, four miles south of Birmingham, where the family established a "new model village" for their workers. Fast forward to 1897, and as Queen Victoria celebrated her Diamond Jubilee, Cadbury manufactured its first milk chocolate.
Dairy Milk came about in 1905, and by 1913 was the company's best-selling line. Milk Tray was next, in 1915, and Flake was launched in 1920. Meanwhile, Dairy Milk was making further headway and by the mid-1920s had become the market leader, a position that it's held on to ever since. The Fruit and Nut variation came out in 1928, and, in 1933, Whole Nut joined the Dairy Milk family. Cadbury Roses were launched in 1938, and in 1956 the company supplied the chocolates for a royal tour of East Africa.
Cadbury moved into TV advertising in 1955, with an ad for drinking chocolate. In 1969, it merged with Schweppes, and the combination persisted until a demerger in 2008, with the drink's business listing in New York as Dr Pepper Snapple. Here, Cadbury continued independently... until Kraft came knocking.
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