Kraft Announced $16.3B Hostile Offer For Cadbury

Kraft Foods on Monday formally made a £9.8 billion hostile bid for Cadbury, making official its effort to create an international food giant. Cadbury quickly rejected the new proposal, setting up a potentially bruising fight for control of the British confectioner.
Kraft’s bid, the equivalent of $16.3 billion, came just before a 5 p.m. deadline in London imposed by Britain’s Takeover Panel, which had given the American food company until Monday to make a formal offer. If Kraft has not done so, it would have been barred from making another bid for Cadbury for six months.
Now Kraft will take its proposal, comprised of 300 pence a share in cash and 0.2589 of a newly issued Kraft share for each Cadbury share, directly to the British company’s shareholders. That amounts to 717 pence a Cadbury share, which is below Kraft’s original bid of 745 pence a share because of a decline in its own stock price.
Analysts had expected Kraft to sweeten its original proposal. But in its filing with the London Stock Exchange, Kraft again asserted that its latest pitch was full and fairly priced. Monday’s offer, it said, had an enterprise value of 13.9 times Cadbury’s earnings before interest, taxes, depreciation and amortization, or Ebitda. Cadbury’s own acquisition of Adams in 2002 was valued at 12.8 times historical Ebitda, Kraft said.
That was not enough to persuade Cadbury to change its mind, and the company quickly rejected the new offer and urged shareholders to do the same.
“The repetition of a proposal which is now of less value and lower than the current Cadbury share price does not make it any more attractive,” Roger Carr, the company’s chairman, said in a statement. “As a result, the board has emphatically rejected this derisory offer and has strengthened its resolve to ensure the true value of Cadbury is fully understood by all.”
Shares in Cadbury traded closed at 761 pence on the London Stock Exchange on Monday after Kraft’s announcement.
In Cadbury, Kraft hopes to combine its Ritz crackers and Oreo cookie brands with Trident gum and Dairy Milk chocolates, reaping $625 million in annual pretax cost savings. Kraft is also hoping to tap the higher growth that Cadbury’s core confectionery business would provide, along with its broader exposure to international markets.
“Kraft Foods believes that a combination with Cadbury would build on a global powerhouse in snacks, confectionery and quick meals, with an exceptional portfolio of leading brands around the world,” Kraft said in its filing with the London Stock Exchange.
Earlier this month, Kraft cut its forecast for net organic revenue growth, disappointing analysts even as its third-quarter results beat expectations.
Since Kraft first made its expression of interest in September, analysts have watched the repartee between the two companies in what could be one of the biggest mergers this year. Both sides have already hired teams of investment banks and law firms to gird for a fight that could last months.
Cadbury’s management and board have said that Kraft’s offer substantially undervalues its future prospects. Last month, the company reported stronger-than-expected results, which it said reinforced its argument that its prospects are better as an independent entity than as part of a “low-growth” conglomerate.
With Kraft now making an official offer, it has roughly three months to publish a prospectus for Cadbury shareholders and solicit enough votes to succeed. It is unknown whether rival bidders will emerge, since logical competitors like Hershey are constrained by several factors, including price.
Kraft is being advised by the investment banks Lazard, Centerview Partners, Citigroup and Deutsche Bank and the law firms Clifford Chance, Cravath, Swaine & Moore, Gibson, Dunn & Crutcher and Arnold & Porter.
Citigroup and Deutsche Bank are also serving as corporate brokers, leading Kraft’s effort to finance the transaction.
Cadbury has been advised by the investment banks Goldman Sachs, UBS and Morgan Stanley, the American law firm Shearman & Sterling and the British law firm Slaughter & May.