Spurned, Kraft still pursues Cadbury


Cadbury, which said its confectionery business has proved “resilient” in the recession, rejected Kraft’s bid as too low. Kraft said it still hoped to clinch a deal, which it called “compelling” and which would create a global food giant with $50 billion in revenue.

But Cadbury said that it reviewed Kraft’s proposal with its advisers and rejected the offer because it “fundamentally undervalues the group and its prospects.” Under the proposal, Cadbury shareholders would get 300 pence, or $4.92, in cash and 0.2589 new Kraft Foods shares for each Cadbury share. Kraft said the offer values the company at 7.45 pounds a share, a premium of 31 percent from Cadbury’s closing share price Friday of 5.68 pounds. Early in London, shares were trading at 8.02 pounds.

A takeover would combine Kraft’s Toblerone chocolates, Oreo cookies and Ritz crackers with Cadbury’s Trident gum and Dairy Milk chocolates and would result in $625 million annual pretax cost savings on marketing spending, procurement and research and development. It would result in higher earnings per share, after all transaction-related costs are included, in the second year, Kraft said.

Jeremy Batstone-Carr, an analyst at Charles Stanley in London, called the proposal “somewhat opportunistic” and said, “Kraft will need to up its offer to have any serious chance of success, perhaps to 800 pence in cash or higher.”

A takeover of Cadbury would help Kraft compete with its larger rival Nestlé by strengthening its market share in Britain and giving it access to regions such as India. It would also expand its gum business and grow its distribution network globally. Cadbury became a pure confectionery company after it spun off its Dr Pepper drinks business in 2008, bowing to pressure from the American activist investor Nelson Peltz, who has a stake in both Kraft and Cadbury. The company said Monday it “is confident in Cadbury’s stand-alone strategy and growth prospects as a result of its strong brands, unique category and geographic scope.”

Demand for Kraft’s ready meals and Cadbury’s chocolate has held up despite a recession that has forced many consumers to cut back spending. The economic downturn meant that more people are having meals at home and continue to buy sweet treats.

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