Cadbury ‘must justify’ latest Kraft rejection

Cadbury is under increasing pressure to justify its rhetoric after rejecting a repeat of the original September takeover offer from Kraft Foods on November 9, according to a leading food analyst.

Clive Black of Shore Capital said: “There is a belief that Cadbury is not as good a company as Cadbury makes out. There is now a lot of pressure on Cadbury to justify its rhetoric.” He said Cadbury shares had been trading at under 600p [each] before Kraft made its first approach.
Black said if it was really expecting a bid valuing its shares at 900p or 1,000p each, such a view was “fanciful”. He added that since there had been no counter bids, he had not expected Kraft to improve its offer.
However, Kraft’s repeat bid has been made over the heads of the Cadbury board directly to shareholders, who now have the chance to make their views known.
Black said Cadbury’s rebuttal had piled more pressure on Kraft to deliver a successful bid for the confectionery firm and an enhanced offer was not out of the question. “I think it [Kraft] could come back with a higher offer consisting of a mixture of cash and shares.”
Cadbury was looking urgently for a “white knight” to counter Kraft’s offer with a more attractive alternative, but that hope seemed increasingly “forlorn”, said Black.
Cadbury rejected the repeat offer of 300p and 0.2589 Kraft shares per Cadbury share, representing a net value per share of 717p, which is unchanged from Kraft’s first announcement on September 7.
Cadbury argued that a subsequent fall in Kraft share price since its initial approach meant the original offer was actually worth 4% less.
“The repetition of a proposal which is now of less value and lower than the current Cadbury share price does not make it any more attractive,” said Cadbury chairman Roger Carr. “As a result, the board has emphatically rejected this derisory offer and has strengthened its resolve to ensure the true value of Cadbury is understood by all.”
Carr urged shareholders to stand with the board in rejecting the offer and it now falls to Kraft to post a formal offer document to Cadbury shareholders within 28 days.