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Kraft set to formalize hostile Cadbury bid

Source: Reuters - Mon 9th Nov 2009

Cadbury's shares edged up in early trade on Monday as the clock ticked towards a 5 p.m. British time deadline for Kraft Foods to either make a formal takeover bid for the confectionery group or walk away.

Cadbury is the world's second largest confectionery group while Kraft is number five with brands such as Toblerone, Cote D'Or, Terry's and Suchard, and bringing them together would pip privately-owned Mars-Wrigley to the global top spot.

The North American food giant is expected to formalise its offer for Cadbury before the deadline passes, triggering a bid battle that could last for months if the formal offer proves unacceptable to the group's board.

Cadbury rejected Kraft's initial approach, which was valued at 745 pence a share two months ago, and its shareholders have indicated a formal bid will now have to be worth above 800p a share to be considered seriously. Kraft's chief executive, Irene Rosenfeld, has said she is determined not to overpay.

Nomura analyst Alex Smith says Cadbury investors will "win if they do, win if they don't." He expects shareholders would get around 820p a share from a Kraft bid but also puts a stand-alone value on Cadbury of 780p, saying management has recently given a more convincing picture of its potential.

A bid for the maker of Dairy Milk chocolate and Trident chewing gum from the owner of Oreo cookies and Velveeta cheese is expected after the Takeover Panel's "put-up or shut-up" ruling said Kraft had to make a bid by 3.00 p.m. British time on Monday or walk away for six months.

Kraft made its initial cash and shares approach for Cadbury at 745p a share, or 10.2 billion pounds, in early September, but the fall in Kraft's share price and the dollar exchange rate make the offer currently worth 713p, while Cadbury shares were trading at 765p by 9:50 a.m. on Monday.

Kraft's initial approach was worth 300p in cash and 0.2589 new Kraft shares for each Cadbury share. "We do not think that Kraft will walk away but we suspect that recent updates may limit the scope for a significantly higher offer" said Jeremy Batstone-Carr at Charles Stanley.

If Kraft makes a formal bid, it is allowed 28 days to post its official offer document to Cadbury shareholders which will then trigger a 60-day bid timetable under UK takeover rules.

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