Page last updated at 22:17 GMT, Monday, 14 December 2009

Cadbury fights back against Kraft bid

A Cadbury Diary Milk
Cadbury described itself as an "exceptional business"

UK confectioner Cadbury has defended its decision to reject a hostile takeover bid from Kraft Foods.

It repeated its claim that Kraft's "derisory" bid was an attempt to "buy Cadbury on the cheap".

It cited its strong trading record over the last year, together with its "exceptional growth opportunities".

The Cadbury board first rejected Kraft's £10bn bid in November, and is in talks with US rival Hershey about an alternative takeover deal.

Cadbury owns brands such as Wispa, Dairy Milk and Flake, as well as Trident Gum and Hall's Sweets.

'No merit'

In a speech to investors, Cadbury chairman Roger Carr said there were simply no benefits for Cadbury in a takeover by Kraft.

Cadbury have come out fighting here
James Targett, Consumer Equity Research

"While Kraft needs Cadbury, Cadbury does not need Kraft," he said.

"There is no strategic, managerial, operational or financial merit in combining with Kraft - indeed we consider the reverse is true."

In an interview with the BBC World Service Mr Carr also said he thought current takeover laws were unfair. He argued that where a hostile takeover bid is mounted and fails, the failed purchaser should be required to pay the costs run up by the target company.

In this case it would mean Kraft paying Cadbury's substantial costs in mounting its defence.

'Growth opportunity'

Shareholders have until 5 January 2010 to respond to Kraft's takeover offer, which Kraft says is in the "best interests" of both companies.

Last week, Kraft said a combination of the two companies "would create a significant growth opportunity for both businesses... and provides both immediate value certainty and meaningful longer-term upside potential".

It is offering 300p in cash and 0.2589 new Kraft shares for each Cadbury share. On Monday the offer was worth about 727p a share - while Cadbury shares closed Monday trading at 795p.

Analysts believe Kraft will need to offer 820p-850p a share to win Cadbury over.

In the defence document issued on Monday, Mr Carr had urged shareholders to resist Kraft's approach.

"Cadbury is an exceptional business worth much more than the offer put forward by Kraft," he said.

"It is clear to all that Cadbury is a particularly attractive asset in the sector with iconic brands, a sharp category focus and an enviable geographic footprint.

"Kraft is trying to buy Cadbury on the cheap to provide much needed growth to their unattractive low-growth conglomerate business model. Don't let Kraft steal your company with its derisory offer."

Hershey move?

Cadbury chief executive Todd Stitzer said Cadbury's performance in recent months had continued to "exceed expectations", demonstrating that Cadbury's strategy of remaining as a standalone company was working.

The company also said it expected revenue growth of between 5% and 7% over the coming years, with operating margins of between 16% and 18% by 2013.

However, Mr Stitzer made no reference to Hershey making a possible bid to rival Kraft's offer.

Hershey, which already makes some Cadbury products under licence in the US, is believed to be interested in tabling a higher offer in a move welcomed by the Cadbury board.

James Targett, an analyst at Consumer Equity Research, questioned Hershey's ability to buy Cadbury outright, given the relative size of the two companies.

He added that it was now down to the shareholders to decide who they trusted.

"Cadbury have come out fighting here. It will come down to whether shareholders have confidence in Cadbury's management's ability to deliver on what they're promising," he said.

"Kraft have to prove why Cadbury won't be able to deliver on those promises as a standalone company."

Cadbury chairman Roger Carr acknowledged that other companies had expressed interest in bidding for Cadbury, and said all bidders would be treated equally.

"It is about value and only value. It is the offer, not the bidder, that would determine the outcome," he said.

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