Kraft plans hostile takeover as Cadbury rejects £10.2bn bid

Thomas Molloy

September 08 2009 04:45 AM

KRAFT, North America's largest food company, yesterday launched a hostile takeover bid for Cadbury after the UK chocolate maker rejected a £10.2bn (€11.6bn) bid.

US-based Kraft, which has its Irish headquarters in the UK and employs fewer than 100 people over here, said it expected to make cost cuttings at Cadbury, which employs more than 40,000 people worldwide, including 1,100 in Ireland.

Cadbury shares soared 38pc on the news, pushing its market value above Kraft's bid price. The bid may trigger rival offers from Nestle and Hershey, forcing Kraft to raise its bid, analysts said.

Kraft, the maker of Maxwell House coffee and Ritz crackers, said yesterday that buying Cadbury would create a "global powerhouse" with annual revenue of about $50bn. Cadbury said the bid "fundamentally undervalues" the company.

"It's clearly hostile," Andy Smith, an analyst at Icap in London, said of the takeover plan. The deal is a "near perfect geographical fit. It's unlikely Kraft will just walk away". Mr Smith said the US company may need to raise the bid's cash component to get Cadbury to agree to a sale.

Kraft said its announcement aimed to "encourage and further" dialogue with Cadbury after its approach was rebuffed.

One top 20 Cadbury investor who declined to be named said benchmarks set by other deals indicated Kraft would need to offer at least 10pc more, "and you could be looking at 20pc to 30pc higher".

Kraft's biggest shareholder is billionaire investor Warren Buffett, whose Berkshire Hathaway owns a stake of almost 10pc.

Savings

Kraft said a combined company would have potential to realise annual pre-tax savings of $625m at a cost of $1.2bn over three years.

Expenses would be cut by combining manufacturing operations, marketing and management.

Analysts said the combination would be a success and also hailed the deal as a sign of renewed interest in mergers and acquisitions (M&A).

"If the deal gets done, it sends a positive signal about the M&A market," Reuters quoted a senior banking source as saying. "There is not that much more consolidation to be done in confectionery, but a successful outcome would make global consumer companies more likely to pursue their own M&A targets,"

Analysts raised the prospect that Nestle might make a counterbid for Cadbury, perhaps in a joint approach with US chocolate group Hershey.

"The most likely alternative bid would come from Nestle, although it would face considerable anti-trust issues and lower cost synergies," analysts at Cazenove said.

Nestle chief executive Paul Bulcke declined to comment directly but said the company had no major acquisitions planned, though was always open to opportunities.

(Additional reporting by Bloomberg and Reuters)