KRAFT BEGINS PROCESS OF CORPORATE WARFARE WITH A SMILE

Cadbury rejects $19.6 billion bid from Kraft

Sarah Shannon and Andrew Cleary, London
September 8, 2009 - 12:00AM

KRAFT Foods, the world's second-largest food company, will pursue a takeover of Cadbury after the British chocolate maker rejected a £10.2 billion ($A19.6 billion) bid. A merger would create a ''global powerhouse in snacks, confectionery and quick meals'', Illinois-based Kraft said.

The offer of 300 pence in cash and 0.2589 new Kraft shares per Cadbury share values the confectioner at 745 pence a share, 31 per cent above last week's close. Cadbury said the bid ''fundamentally undervalues'' the company.

Cadbury shares soared as much as 40 per cent, pushing its market value above the bid price. Analysts said Kraft's proposal might trigger rival offers from Nestle and Hershey for Cadbury's Trident chewing gum and Dairy Milk chocolate.

Kraft said its announcement aimed to ''encourage and further'' dialogue with Cadbury after its approach was rebuffed.

''It's clearly hostile,'' Andy Smith, an analyst at Icap in London, said. The deal is a ''near-perfect geographical fit. It's unlikely Kraft will just walk away.''

Mr Smith said Kraft might need to raise its bid's cash component to get Cadbury to agree to a sale.

Cadbury shares jumped 214.5 pence, or 38 per cent, to 782.5 pence in London, reversing their decline for the year.

Kraft's shares fell about 2 per cent to the equivalent of $US27.54 ($A32.39) in German trading, and have added about 3 per cent this year. US markets were closed for Labour Day. Kraft was weak in Britain and strong in markets such as Brazil and Scandinavia, where Cadbury was not a player, Mr Smith said. Kraft also lacked expertise in chewing gum, which Mr Smith called the sweets market's ''most attractive space''.

Cadbury chief executive Todd Stitzer ''has always said that Cadbury wanted to be the consolidator of the global confectionery industry, not the consolidatee'', Evolution Securities analyst Warren Ackerman said in a note. ''There is a reasonable chance that Nestle/Hershey could counter-bid, with Nestle taking gum and Hershey taking chocolate.''

Mr Ackerman, who rates Cadbury a ''buy'', estimated the chances of a counter-bid at 30 to 40 per cent. He said it was inevitable Cadbury would be bought after Mars acquired chewing-gum maker Wm Wrigley Jr Co.

''We do not anticipate any issues with financing the transaction,'' Kraft chief executive Irene Rosenfeld said on a conference call. ''We have good access to debt. We don't currently plan to tap the market for equity.'' Kraft said a combined company would have revenue of about $US50 billion and have potential to realise annual pre-tax savings of $US625 million at a cost of $US1.2 billion over three years.

The bid ''is competitively priced, but I think they will have to go higher'', Martin Deboo, an analyst at Investec Securities, said of Kraft. He rates Cadbury ''hold''.

Shares in Nestle, the world's biggest food company, were little changed in Zurich trading.

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This story was found at: http://business.theage.com.au/business/cadbury-rejects-196-billion-bid-from-kraft-20090907-feff.html