Cadbury’s biggest UK shareholder threw a potential spanner in the works of an £11.9 billion agreed takeover bid by Kraft, of the United States, tonight by publicly denouncing the deal on price grounds.
Legal & General Investment Management (LGIM), which holds 5.1 per cent of the British confectionery group, said that the 850p cash-and-shares bid by Kraft did not reflect the long-term value of the company.
Mark Burgess, head of active equities for LGIM, said: “We are disappointed management have recommended the offer for this iconic and unique British company, but are grateful for the constructive way they have engaged with us throughout the process.”
LGIM, which is the biggest single investor in listed companies in the UK, did not say whether it would be voting against the deal, which was formalised by the boards of Cadbury and Kraft this morning after dramatic meetings during the early hours.
Kraft needs to secure the support of 90 per cent of Cadbury’s shareholders, although it has reserved the right to reduce that level to 50 per cent if it chooses.
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LGIM is among the most highly respected of Britain’s institutional investors and its comments, although unlikely to derail the deal completely, could spark fresh opposition from other UK shareholders and make it harder for Kraft to secure acceptances.
LGIM declined to comment beyond a statement issued after the market closed today.
Neptune Investment Management, which has a small Cadbury’s holding of about 0.3 per cent, added its voice to L&G’s criticisms.
Robin Geffen, Neptune’s managing director, said that Kraft’s offer, which is funded through debt, is “unappealing at best”.
“This deal is ultimately bad for everyone – shareholders don’t get a full value, bank holders will likely suffer a downgrade and employees will lose their jobs in large numbers,” he said.
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“Sadly, Cadbury’s management won’t fight on and too many large shareholders are focused on very short-term performance.”
Their stance stood in contrast to other big UK owners of Cadbury shares, many of which embraced Kraft’s improved offer today and signalled support for the offer.
Standard Life Investments, which had earlier said that it would hold out for £9 a share, indicated that it would now vote in favour.
David Cumming, head of UK equities at the Edinburgh-based insurer, which holds less than 1 per cent of Cadbury, said: “We are supportive of the management’s decision, although the achieved price is slightly light of our stated target.”
Another leading UK institutional investor speculated that Kraft investors could yet oppose the deal.
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“I’m surprised how high they’ve managed to get. This is better on all levels. The numbers are better, even that our own internal valuation,” said one investor.
“It doesn’t look as if Kraft could have gone any higher than this; their shareholders would not have let them,” one investor said.
“There may still be an issue of anger among the Kraft holders.”
The takeover bid has created a huge outpouring of resentment against foreign takeovers of British companies, particularly in Birmingham, the birthplace of Cadbury.
In the past four years, more than £292 billion has been spent by foreign companies buying British rivals.
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During the past decade, well-known names such as P&O, O2, Abbey, BAA, Jaguar Land Rover, the glass manufacturer Pilkington and the steelmaker Corus have all succumbed to foreign takeovers, along with a clutch of electricity and water companies.
But few have aroused feelings or emotions as strong as those stoked by the Cadbury bid.
Kraft suffers from a poor reputation among many in the food industry because it makes most of its money from processed cheese and meat.
It originally tabled a £10.9 billion bid for Cadbury in September last year. The bid went hostile in November as Kraft put its proposals directly to Cadbury’s shareholders over the heads of its board.
However, Cadbury and its shareholders strongly resisted, obliging Kraft to raise its terms.
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Ferrero, the Italian maker of Nutella, has already indicated it will not make an offer for the company.
Hershey, of the US, is understood to be more likely to compete with Kraft for control of the British confectioner, but few believe that Hershey can outgun Kraft, which is five times its size.
Hershey has less than a week if it wants to enter the fray.
The Takeover Panel confirmed this morning that Hershey and Ferrero must either make a firm offer for Cadbury or admit that they will not make a bid by Monday, January 25.
The deal ends a proud history for Cadbury as an independent company.
The chocolate maker, famous for brands such as Dairy Milk and Wispa, dates from 1824, when John Cadbury, a Birmingham Quaker, began selling cocoa-based drinks in his tea and coffee emporium.