Cadbury Rejects Kraft's Offer

Cadbury has 28.4 percent of the world gum market, Kraft has 0.1 percent.

By Andrew Greiner
|  Monday, Sep 7, 2009  |  Updated 10:45 AM CDT
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Cadbury Rejects Kraft's Offer

Mmmm, creme eggs.

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Ehhhh, what’s up doc?

Much like Elmer Fudd, Kraft Foods went hunting “wabbits” and got owned by the bunny.

The Northfield based food giant laid down an offer of $16.7 billion for the British company Cadbury, who is most famous for making those cream filled eggs that get real popular around Easter.

But Cadbury rejected the deal.

They said the offer undervalued the company, and expressed confidence in its "standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope."

Kraft was undeterred, however, and said it would continue to seek a transaction which Cadbury's board could support.

Kraft, whose brands include Velveeta cheese product and Oreo cookies, said it had proposed paying $4.91 in cash and 0.2589 new Kraft Foods shares per Cadbury share, valuing Cadbury shares at $12.19.

Cadbury has a 10.3 percent share of the world confectionary market in 2008, second only to Mars Inc. with 14.8 percent. Kraft was fifth at 4.5 percent.

Cadbury has 28.4 percent of the world gum market, Kraft has 0.1 percent.

Graham Jones, analyst at Panmure Gordon & Co., recommended that shareholders hold out for at least $13.09 a share.

"A key question is whether there is a counter bid, most likely from a Nestle-led consortium," Jones said. "However, we see the most likely scenario being Kraft being successful on improved terms."

Kraft said the combination would create "a global powerhouse in snacks, confectionery and quick meals," with leading positions in developing markets including India, Mexico, Brazil, China and Russia.

"This proposed combination is about growth. We are eager to build upon Cadbury's iconic brands and strong British heritage through increased investment and innovation," said Irene B. Rosenfeld, chairman and CEO of Kraft Foods.

Kraft may be in for a fight.

"Speculation is already mounting that Hershey and Nestle may come together in one form or another to counter bid, with Nestle potentially interested in Cadbury's gum business and Hershey in the chocolate-confectionery brands, with other interested parties," said Darren Shirley, analyst at Shore Capital.

The Unite union called for meetings with both Kraft and Cadbury to explain the impact of the proposed combination in the United Kingdom.

Kraft indicated that it would reverse Cadbury's intention of closing its Somerdale plant near Bristol in southwestern England, a promised the union treated with caution.

"It is essential that no one makes rash promises which give false hope to the work force, and in particular to our members under threat of redundancy at the Somerdale plant," said Jennie Formby, national officer of Unite.

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