Cadbury today rejected a £9.8 billion hostile bid from Kraft, the world’s second largest food company, branding the offer as “unattractive” and “derisory”.
Earlier today, Kraft went ahead with a widely expected hostile approach for Cadbury but refused to change the terms from its indicative offer in September.
Today, Cadbury branded Kraft’s offer “worse than the proposal that the board has previously rejected as fundamentally undervaluing Cadbury and its prospects”.
The original cash and stock deal valued Cadbury at £10.2 billion, equal to 745p a share. However, since September, Kraft’s share price has fallen, resulting in a lower offer of £9.8 billion, the equivalent of 717p a share. Kraft is offering 300p in cash and 0.2589 in new Kraft shares for every one share in Cadbury.
Cadbury shares rose 3p to 761p while Kraft’s shares rose marginally to $26.85.
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Cadbury has the support of some key shareholders, who do not want it to engage with Kraft without an offer of 850p a share or more.
Roger Carr, the chairman of Cadbury, said today: “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.
“As a result, the board has emphatically rejected this derisory offer and has strengthened its resolve to ensure the true value of Cadbury is fully understood by all.”
Mr Carr added: “Kraft’s offer does not come remotely close to reflecting the true value of our company, and involves the unattractive prospect of the absorption of Cadbury into a low-growth conglomerate business model.”
Kraft has gone hostile, which means it is now approaching Cadbury’s shareholders directly, after the board of the British confectionary group rejected the original proposal in September.
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Irene Rosenfeld, chairman and chief executive of Kraft, said today: “We remain convinced of the strategic merits for both companies of combining Kraft Foods and Cadbury. We believe that our proposal offers the best immediate and long-term value for Cadbury’s shareholders and for the company itself compared with any other option currently available, including Cadbury remaining independent.”
Kraft had until 5pm today to make a bid for Cadbury after the UK Takeover Panel issued a “put up or shut up” deadline.
Ms Rosenfeld is said to be determined to acquire Cadbury, but not at any price. Last week she said that she would stay “disciplined” on Cadbury and not risk her company’s dividend. She said: “With or without Cadbury, Kraft Foods is well-positioned.”
If the companies combine, it would create an enterprise that generates at least $50 billion (£30 billion) in revenue. Kraft, the sector leader in the United States, is second worldwide to Nestl? and has a strong presence in Europe, with brands such as Milka and Toblerone. Cadbury dominates Britain and Australia with brands such as Crunchie and Flake.
Kraft claims to have identified about $625 million of cost savings if its bid succeeds. Of this, it believes $300 million will come from greater economies of scale in procurement, manufacturing, customer service logistics and R&D. Another $200 million will come from administrative cost savings and $125 million from economies of scale in marketing, media and selling expenses.
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Kraft said that it had today agreed a £5.5 billion credit facility with a syndicate of banks led by Citigroup, Deutsche Bank and HSBC, which would finance the cash portion of its bid and go towards paying down some of Cadbury’s debt.