Page last updated at 18:26 GMT, Monday, 7 September 2009 19:26 UK

Cadbury snubs 10.2bn Kraft move

Cadbury's produces some of the UK's best known chocolate bars
Cadbury's produces some of the UK's best known chocolate bars

Cadbury shares rose almost 40% after it rejected a £10.2bn approach from Kraft Foods, sparking talk of a bidding war.

Kraft said that the purchase of the maker of Dairy Milk would protect jobs in the UK - including saving a factory earmarked for closure.

But Cadbury said the approach "fundamentally" undervalued the firm.

Analysts say Kraft may sweeten its offer. Others could enter the fray, with the prospect of Nestle and Hershey making a joint move being mooted.

"Our initial view is that this represents a competitively pitched offer, but something less than a knockout blow," said Martin Deboo at Investec.

'Strong brands'

John Cadbury, a Quaker, opened shop in Birmingham in 1824, selling tea, coffee and hot chocolate - as an alternative to alcohol
Dairy Milk brand introduced in 1905, with Milk Tray coming ten years later
Merged with Schweppes drinks business in 1969. Its drinks arm was spun off in 2008
Employs about 45,000 people in 60 countries

Kraft said it wanted to create "a global powerhouse in snacks, confectionery and quick meals".

As well as Dairy Milk, Cadbury also owns the Green & Black's chocolate brand and Halls lozenges, Trident and Dentyne gum brands, and liquorice allsorts maker Bassett's. It spun off its drinks division as a separate business last year.

It is seeing much of its growth in emerging markets such as India and Russia.

And Cadbury said its "strong brands, unique category and geographic scope" left it confident of its future as a standalone firm.

Distribution savings

Kraft's brands include Kenco and Maxwell House coffee, Oreo biscuits, Jacobs, Terry's Chocolate Orange and Toblerone as well as cheese products such as Philadelphia and Dairylea.

"It's part of England's heritage" - reaction from the streets of Bournville

The proposed deal would allow up to $625m a year to be saved in distribution, marketing and product development costs, Kraft said.

Cadbury's brands were "highly complementary" to its portfolio, it added, saying that the UK firm "would benefit from Kraft Foods' global scope and scale and array of proprietary technologies and processes".

"As we have done, Cadbury has built wonderful brands by focusing on quality, innovation and marketing, but we believe the next stage in Cadbury's development will be challenging, given the increased importance of scale in the industry," said Kraft chairman Irene Rosenfeld.

Kraft product
Founded in Illinois as a cheese wholesaler in 1903
Bought by Philip Morris in 1988, which also purchased Nabisco for $19.2bn in 2000 before integrating it into Kraft Foods
More than 40 of its brands are more than 100 years old
Has 98,000 employees and 168 manufacturing and processing facilities worldwide

"We are eager to build upon Cadbury's iconic brands and strong British heritage through increased investment and innovation. We have great respect and admiration for Cadbury, its employees, its leadership and its proud heritage."

'Iconic brands'

Industry analysts have been speculating that there could be consolidation in the food sector. Evolution Securities said that Nestle and Hershey could come together to make a counter-bid for Cadbury, with Nestle taking on the chewing gum business and Hershey running the chocolate division.

Kraft said its possible offer - based on paying 745 pence for every Cadbury share - was a 31% premium to its closing price last week and 42% more than the firm's shares were worth in early July, when speculation about possible deals in the sector intensified.

In a letter to Cadbury's, Ms Rosenfeld said it would be able to continue to operate its Somerdale factory in Keynsham, near Bristol, which is set to be closed, and also invest in its plant in Bournville, Birmingham, "thereby preserving UK manufacturing jobs".

Last year Cadbury announced plans to slash 15% of its workforce and factory numbers worldwide - equivalent to 7,800 jobs - as it looked to cut costs.

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CNBC Kraft Drops After Cadbury Bid - 12 hrs ago
Yahoo! News Kraft primed to sweeten $16.7 billion Cadbury bid (Reuters) - 24 hrs ago
New York Times Rebuff by Cadbury Doesnt Deter Kraft - 26 hrs ago
The Scotsman Kraft's Cadbury move sparks City hopes of a bidding war - 31 hrs ago
CNN Money Kraft primed to sweeten $16.7 bln Cadbury bid - 35 hrs ago

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