Kraft under pressure to raise its bid for Cadbury
Kraft faced pressure to raise its bid for Cadbury with extra cash as the market digested Tuesday's warning from key investor Warren Buffett and an initial deadline passed with few of the UK confectioner's shares changing hands.
The US food group said yesterday it had a 1.52pc take-up from Cadbury shareholders for the £10.5bn (€11.7bn) hostile bid by a first closing deadline of 1pm yesterday.
It said the cash and shares bid, currently worth 767p per share, remained open until February 2, but analysts said Kraft would have to improve the terms to 800p or more to stand a chance of success.
Most investors will likely be waiting until a January 19 deadline for Kraft to raise its bid before deciding whether to accept.
"Kraft will have to offer at least 810p to attract acceptances," said analyst Dirk Van Vlaanderen at Jefferies International. Mr Buffett's warning, which coincided with Swiss food group Nestle's announcement it would not make a rival bid, pushed Cadbury shares lower and Kraft stock higher as it raised the chance of Cadbury escaping and cut the chance of Kraft overpaying in an auction.
Mr Buffett said on Tuesday his Berkshire Hathaway investment group would vote against Kraft's proposal to issue 370 million new Kraft shares to fund the bid unless he was convinced it did not destroy shareholder value.
Analyst Martin Deboo at Investec Securities said Mr Buffett's message was not to kill the deal but for Kraft to use more debt than shares to fund it, and he believes there is a 50:50 chance between Kraft winning with a bid of 820p and that of Cadbury escaping.
"We read Berkshire not as trying to impose a veto, but challenging Kraft's management to back their convictions with more cash and less equity," Mr Deboo said. Cadbury shares closed off 0.9pc at 772p.
Martin Dolan at Execution Research said Mr Buffett's comments show the conflict between him and Kraft, and the latter will have to offer over 800p to encourage Cadbury to let Kraft see its books and says Kraft could pay an extra 60p per share.
Mr Buffett's intervention and Nestle's decision narrowed the premium of Cadbury's share price to the bid price to around 0.7pc from nearly 10pc on Monday. Under Britain's takeover rules, Kraft has until January 19 to raise its bid while Cadbury shareholders have until February 2 to accept.
Potential bidders for Cadbury who have expressed an interest publically, Hershey and Italy's Ferrero, have until January 23 to come up with fully financed bids or withdraw.
Cadbury has until January 12 to come up with fresh information to defend itself against the Kraft bid when it is expected to pre-release its 2009 results, but it has gained a three-day extension to January 15 to give some further financial details.