Cadbury Accepts Kraft’s Raised 11.9 Billion-Pound Bid (Update3)
By Andrew Cleary, Zachary R. Mider, and Duane D. Stanford
bloomberg.com
Jan. 19 (Bloomberg) -- Cadbury Plc agreed to an improved 11.9 billion-pound ($19.7 billion) offer from Kraft Foods Inc., ending more than four months of resistance and creating the world’s largest confectioner.
Cadbury investors will get 840 pence a share, including 500 pence in cash and the rest in stock, Kraft said in a statement today. Cadbury will also pay its holders an additional 10-pence dividend once the offer is unconditional. The revised bid is about 9 percent higher than Kraft’s previous bid of 769 pence, and consists of 40 percent stock and 60 percent cash.
“It looks like a modest win if not a home run for Cadbury shareholders,” said John Haynes, who helps manage 12 billion pounds including 5 million Cadbury shares at Rensburg Sheppards Plc in London. Five pounds “in cash is enough to keep us happy, and Kraft is a better investment with Cadbury than they were without.”
Kraft Chief Executive Officer Irene Rosenfeld increased the original bid after Cadbury rejected it as “derisory” and Hershey Co. prepared to mount a rival offer. A purchase by Kraft displaces Mars Inc. as the world’s biggest candy maker, according to Euromoniter data. The takeover creates a company with about $50 billion in annual sales, adding Cadbury’s Creme Eggs and Trident gum to Kraft’s Oreo cookies.
“We have increasing momentum in our business,” Rosenfeld said in an interview today. “We are quite confident that the combination of these two companies will help us to build on that momentum and further accelerate our ability to deliver attractive returns.”
‘Thrive’
Kraft said the purchase will result in at least $675 million in annual cost savings, $50 million more than it previously estimated, and give the company leading positions in emerging markets, including India, Brazil and Mexico. The purchase should close in mid-February, Kraft said.
Cadbury rose as much as 3.8 percent in London trading to 838 pence, and climbed 27.5 pence to 835 pence as of 3:26 p.m. local time. Kraft declined 83 cents to $28.75 in New York Stock Exchange composite trading.
Hershey
Hershey is unlikely to top Kraft’s offer, two people familiar with the matter said before Kraft’s final offer was released. Kirk Saville, a spokesman for the Pennsylvania-based candy maker, declined to comment. Cadbury agreed to pay a break fee of 117.7 million pounds if it withdraws the recommendation.
“This looks like a deal,” said Jon Cox, an analyst at Kepler Capital Markets in Zurich. “It’s hard to believe anybody can come in and break up the party.”
Hershey gained $1.54, or 4.3 percent, to $37.79 at 10:33 a.m. on the New York Stock Exchange.
Hershey and Ferrero SpA, who have said they are considering their options, must clarify whether they intend to make a firm offer for Cadbury by Jan. 25, the U.K. Takeover Panel said today. A Ferrero spokesman declined to comment.
As recently as Jan. 14, Cadbury called Northfield, Illinois-based Kraft an “unfocused conglomerate” with businesses in “unappealing categories.” Kraft had to raise its bid to at least 850 pence to win over Cadbury investors, according to a Bloomberg survey of nine holders.
Rosenfeld faced pressure from her own shareholders to get the price right. Billionaire investor William Ackman last week joined Warren Buffett, Kraft’s biggest shareholder, in saying Kraft risked diminishing the merits of a Cadbury takeover by issuing too much stock to pay for it. Rosenfeld declined to discuss any conversations with Buffett in today’s interview.
Deal Value
The increased offer values Cadbury at 13 times 2009 earnings before interest, tax, depreciation and amortization, according to Kraft’s statement. Comparable deals in the industry valued the businesses at 14.3 times to 18.5 times, Cadbury said in its Jan. 12 defense document to shareholders.
“A year from now, Kraft will be singing the praises of what a great deal they got,” said Andrew Wood, a senior analyst at Sanford C. Bernstein in New York.
The acquisition will generate pretax cost savings of at least $675 million annually by the end of its third year, at a cost of $1.3 billion, Kraft said. The deal will add to Kraft’s 2011 earnings per share by 5 cents, and the company will lift its long-term sales growth target to at least 5 percent from at least 4 percent previously, the company said in the statement.
Kraft expects to revise its long-term earnings per share growth target to 9 percent to 11 percent, more than the previous 7 percent to 9 percent range.
‘Tremendous Sense’
Kraft informed Buffett of the revised deal with Cadbury, according to a person with knowledge of the matter. Buffett didn’t immediately return a request for comment sent to his assistant, Debbie Bosanek. Buffett’s Berkshire Hathaway Inc. said in a Jan. 5 statement it may support a Cadbury takeover if it concludes that the final offer “does not destroy value for Kraft shareholders.”
Ackman’s Pershing Square Capital Management LP bought a $950 million stake in Kraft, or 2 percent of the company, Ackman said in a Jan. 15 interview. A purchase of Cadbury makes “tremendous sense,” he said.
Kraft said it no longer needs to have the deal approved by its own shareholders because it reduced the number of shares it plans to issue to less than 20 percent of its existing stock.
Credit-default swaps on Cadbury fell 19.5 basis points to 57, the lowest since November, according to CMA DataVision prices at 1 p.m. in London. Contracts on Kraft rose 9 basis points to 85, a one-month high, and Hershey plunged 47 basis points to 55, CMA prices show.
Pizza Sale
Kraft said this month it would sell pizza brands including DiGiorno and Tombstone to Nestle SA and use proceeds from the $3.7 billion deal to boost the cash component of its Cadbury bid. The Toblerone maker has until Feb. 2 to gain acceptance from a majority of Cadbury investors.
Cadbury CEO Todd Stitzer embarked on a week-long blitz in London and New York in December to persuade Cadbury shareholders not to accept Kraft’s offer, then worth about 733 pence a share. Rosenfeld also met with investors and said on a November earnings call that Kraft was well positioned for “top-tier performance” with or without Cadbury.
Stitzer wasn’t mentioned in today’s Kraft release and company spokesman Trevor Datson declined to comment on his role. Cadbury’s board unanimously recommended Kraft’s offer.
The 186-year-old U.K. company was founded by the Cadbury family, social reformist Quakers, who provided workers with accommodation and education in addition to employment.
Advisers
Lazard Ltd., Centerview Partners, Citigroup Inc., and Deutsche Bank AG are advising Kraft on the deal. Cadbury is using Goldman Sachs Group Inc., Morgan Stanley, and UBS AG.
Some analysts had projected Cadbury would fetch 900 pence a share after Kraft disclosed its offer in September. Those estimates began to drop when Kraft made its offer formal Nov. 9 without raising the bid and no competing ones emerged.
“We are supportive of the management’s decision although the achieved price is slightly light of our stated target,” David Cumming, head of U.K. equities at Standard Life Investments, said in an e-mailed statement today. Cumming yesterday said an offer would have to be more than 900 pence to win Standard Life’s support.
To contact the reporters on this story: Andrew Cleary in London at acleary7@bloomberg.net; Zachary Mider in New York at zmider1@bloomberg.net; Duane D. Stanford in Atlanta dstanford2@bloomberg.net.
Last Updated: January 19, 2010 10:38 EST
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