Cadbury Accepts Kraft's $19.5 billion Offer

123jump.com Staff
19 Jan, 2010
New York City

Kraft revised its offer for Cadbury to

[R]10:30 AM New York, 2:00 PM London – Kraft revised its offer for Cadbury to £11.9 billion that included 60% cash. The higher offer is unlikely to emerge from Hershey Co. Kraft through Cadbury hopes to increase its presence in faster growing emerging markets.[/R]

Cadbury PLC agreed to the improved offer from Kraft Foods Inc after five months of battle to convince shareholders to remain independent.

Kraft offered 840 pence a share for Cadbury and 10 pence dividend that values the company at £11.9 billion or $19.5 billion. The offer includes 500 pence in cash and 0.1874 new Kraft shares for each Cadbury share.

The original Kraft offer included 300 pence in cash and 0.2589 new Kraft shares and before the offer Cadbury in London traded below 500 pence a share. The revised offer has 60% cash and 40% of Kraft stock.

Kraft has coveted Cadbury for its franchise in faster growing emerging markets, candy products that sell at higher margins and geographic expansion.

Kraft’s offer in September put UK based Cadbury in play with fragment shareholding and no anchor investor that the company could count on. Cadbury knew it will have a hard time defending itself from a hostile offer.

All Cadbury could have done is to conduct an auction and seek a higher price from the bidders while retaining a hostile posture, especially when considerable shareholder base was among hedge funds with a short term outlook.

Cadbury chairman Roger Carr and chief executive Todd Stitzer sought competing offers from Hershey and publicly preferred to be merged with Hershey Co. Italy based Ferrero SA was a distant runner. A possible contender Nestle SA did not bid after it acquired frozen pizza business from Kraft for $3.7 billion.

Cadbury unions also worried that the merger with Kraft may lead to 30,000 UK job losses and a loss of British icon.

The deal faced considerable opposition in the British media and Cadbury management worked hard to convince shareholders that independent Cadbury is better than the candy maker under slow growing American food giant.

Hershey will have difficult time to challenge the 850 pence a share offer from Kraft and raise debt of more than $11 billion for the deal. The UK takeover panel has extended the time for final offer from Hershey till Monday next week but most hedge fund managers and analysts are pessimistic about a better offer.

Cadbury agreed to the Kraft offer with £117.7 million breakup fee and Kraft lowered its shareholder acceptance bar to 50% and one vote from 90%.

Cadbury, founded 186 years ago has retained its colonial era presence in many countries around the world and is a leading candy maker in India and has a significant market shares in Brazil, Egypt, Mexico, Thailand and Caribbean countries.

Kraft in a press release said it expects to save $675 million annually, $50 million more than it previously estimated primarily with lower marketing and distribution costs.

Cadbury shareholders are expected to approve the offer in the early February.

Goldman Sachs, Morgan Stanley and UBS AG advised Cadbury and Lazard Ltd, Centerview Partners, Citigroup and Deutsche Bank AG advised Kraft on the deal.