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Cadbury fires final defence

Source: Reuters - Fri 15th Jan 2010

Cadbury Chairman Roger Carr attacked Kraft Foods' 10.5 billion pound hostile takeover bid and its past performance on Thursday, but was uncertain over the prospects for a rival bid from chocolate maker Hershey Co.

In a final defence statement under UK Takeover Panel rules, Cadbury reiterated its growth prospects ahead of a January 19 deadline for Kraft to raise its offer.

"Kraft's offer is even more unattractive today than it was when Kraft made its formal offer in December" Carr said on a call with analysts.

Carr stressed that more than half of the bid is comprised of Kraft shares, exposing Cadbury shareholders to Kraft's history of missed targets. He compared that with the UK confectionery group's robust results and excellent momentum into 2010.

Hershey is still working on a Cadbury bid to top Kraft's offer but has not made a final decision, according to a source familiar with the matter on Wednesday. The Financial Times said Hershey had authorised drawing up a bid for Cadbury and making an offer within two weeks.

Carr was not able to provide a more definitive picture.

"In recent times they (Hershey) have reaffirmed their interest, they are clearly, from newspaper speculation, working on the possibility of an offer" Carr said.

"From our point of view we would help facilitate that in the way that we would help anyone come to this business, but we await an offer ... There is no formal bid and may not be" he added. 


Cadbury shares rose 1.2 percent on Thursday on revived talk of Hershey bid to 796p, compared with the value of Kraft's offer at 762p per share. Kraft shares fell 0.6 percent and analysts still expect it will have to raise its offer to above 800p per share to succeed.

Kraft Chief Executive Irene Rosenfeld was making her own plea to Cadbury shareholders, visiting their offices in London on Wednesday and Thursday. But the head of the world's second-largest food company mostly listened rather than provide new information, according to one investor who attended a meeting.

"Kraft didn't have much to say. In fact, I thought it was a bit of a waste of time really" the investor said. "They seemed to be saying we are here now and you will hear from us at a later stage. They talked about strategy, but there was nothing beyond that."

Analysts said a solo Hershey bid could be extremely challenging as Hershey is only half the size of Cadbury and a big share issue would dilute the controlling Hershey Trust.

Hershey has nine days to come up with a formal offer, which could prove tight if it still needs partners to finance the bid and buyers for parts of the Cadbury's business. 

"We view a solo Hershey bid as a probability of 15 percent. We estimate a two-third probability of Kraft winning" said analyst Simon Marshall-Lockyer at Jefferies International, with the other probability being Cadbury remaining independent.

Marshall-Lockyer believes Hershey would likely have to sell its KitKat franchise in the United States back to Nestle for around $1.6 billion and then sell Cadbury's Trident gum business for $12.9 billion to leave Hershey with Cadbury's chocolate and candy businesses.

Analyst Jeremy Batstone-Carr at Charles Stanley says any Hershey approach high enough to win would have to be in cash and shares and involve a rights issue to leave the Hershey Trust in control. Even with selling off KitKat in the United States and Cadbury's gum, Hershey would still struggle to mount a standalone bid, he added.

"We view the likelihood of its success as low, particularly given our strongly held belief that Kraft will raise its offer" Batstone-Carr said.

Under UK takeover rules, Kraft has until January 19 to sweeten its bid. Hershey has until January 23 to declare its hand and Cadbury shareholders until February 2 to respond to Kraft.

Britain's business secretary, Peter Mandelson, met with fund managers on Thursday to urge them to take a more long-term view in takeover bids and not ignore local and workforce interests.

"I ask Cadbury shareholders to take a longer view of shareholder value. I'm not in a position to block takeovers but I do have an obligation to raise and ask questions" he said.

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