Kraft says Cadbury merger would save UK jobs

By Elaine Watson

- Last updated on GMT

Related tags Cadbury United kingdom Investment

Kraft says Cadbury merger would save UK jobs
The UK would be a “net beneficiary in terms of jobs” were Kraft successful in its bid to acquire Cadbury, its bosses have insisted.In a document...

The UK would be a “net beneficiary in terms of jobs” were Kraft successful in its bid to acquire Cadbury, its bosses have insisted.

In a document outlining the rationale behind its audacious bid for Cadbury - which Cadbury’s board rejected this morning - Kraft said it would keep Cadbury’s Somerdale plant (which Cadbury has earmarked for closure) open. “We believe we would be in a position to continue to operate the Somerdale facility and to invest in Bournville, thereby preserving UK manufacturing jobs.”

Cadbury recently announced plans to close Somerdale and shift production to factories in Poland and Bournville as part of a group-wide cost-reduction plan. In proposing to keep it running, Kraft was “playing a slightly political game”, said City analysts.

The 745p a share bid from Kraft represents a premium of 42% over Cadbury’s share price of 524p on July 3, 2009, before market rumours started to inflate the share price, claimed Kraft.

The deal would create the world’s largest confectionery company with significant scale in emerging markets, claimed Kraft. Kraft’s strengths in Continental European and Latin American chocolate would also complement Cadbury’s ‘Commonwealth’ chocolate and its global strengths in gum and candy.

“Kraft Foods believes that the strategic and financial rationale for the transaction is compelling. The transaction would create a company with approximately $50bn in revenues; a global powerhouse in snacks, confectionery and quick meals, with an exceptional portfolio of leading brands around the world; a geographically diversified combined business, with leading positions and significant scale in key developing markets including India, Mexico, Brazil, China and Russia; and a strong presence in instant consumption channels in both developed and developing markets, expanding the reach and margin potential of the combined business; and the potential for meaningful revenue synergies over time from investments in distribution, marketing and product development."

Synergy savings of “at least $625M annually” were also possible through increased operational efficiencies, it anticipated.

However, Cadbury said the offer “fundamentally undervalues the group and its prospects”, adding that it was “confident in Cadbury’s standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope and the continued successful delivery of its Vision into Action plan”

Analysts at Panmure Gordon, who predicted an 800p a share offer earlier this year, anticipated that Kraft would “come back with an improved offer, with a larger proportion of cash”

They added: “Kraft is also playing a slightly political game in saying the UK would be a net beneficiary for jobs as it would reverse Cadbury’s decision to close the Somerdale factory, which is currently planned to close next year. We recommend shareholders hold out for at least 800p per share.”

A key question was whether there would be a counter bid, most likely from a Nestlé-led consortium, they said. “However, we see the most likely scenario being Kraft being successful on improved terms.”

Investec analysts also advised shareholders to hold out for more: “We think the offer is short of a knockout blow and advise clients to await further events.”

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