Deadline looms for Kraft to make Cadbury bid

[November 09, 2009]  LONDON (AP) -- Shares in Cadbury PLC edged higher on Monday as a deadline loomed for Kraft Foods Inc. to make a formal offer for the British candy maker or walk away for six months.

Analysts have said Kraft, the maker of Oreo cookies, Nabisco crackers and its namesake cheese, will have to sweeten its previous failed bid to have any chance of success.

The prospect of an offer has caused some consternation in Britain, where the 195-year-old Cadbury is a much-loved brand -- its Dairy Milk is the country's top-selling chocolate bar.

Cadbury, which also makes Green & Black's chocolate brand, Halls lozenges and the Trident and Dentyne gum brands, has already spurned a $16.7 billion cash-and-stock offer from Kraft.

Reports over the weekend suggested that Kraft will now make a bid directly to shareholders. It has until 5 p.m. (1700 GMT) on Monday to table a firm offer -- or under British takeover rules it will be prohibited from making a new offer for six months.

Kraft's original bid of 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share was worth 745 pence per Cadbury share.

The decline in Kraft's shares put the offer at around 720 pence currently. In contrast, shares in Cadbury have risen about 30 percent since late August and they were up just over 1 percent at 766 pence in morning trade in London.

Charles Stanley analyst Jeremy Batsone-Carr said Kraft would have to offer a deal worth at least 850 pence for it to be a "knockout," or immediate success.

But he added that might not be forthcoming because of the lack of rival bidders, doubts about the sustainability of a recent trading improvement at Cadbury and the difficulty of persuading investors who are well aware of Cadbury's strong brand and image.

"We therefore believe that if Kraft does not pay up, Cadbury has a stronger chance of escaping its clutches in which case we suspect that the latter's share price downside could be material," Batstone-Carr said.

Despite speculation of a bidding war when Kraft's initial approach was revealed in September, rival interest from the likes of U.S. candymaker Hershey Co. has yet to emerge and consumer goods group Unilever NV publicly ruled itself out last week.

Cadbury last month reported higher-than expected sales for the third quarter, increasing pressure on Kraft to up its bid. The British company also lifted its revenue forecast for this year to "around the middle" of its previous guidance of 4-6 percent growth.

Billionaire Warren Buffett, whose investment firm Berkshire Hathaway is the biggest shareholder in Kraft, has said the Cadbury offer is "pretty full" as it is.

Kraft, based in Northfield, Illinois, reported a lower quarterly profit last week because of a big one-time gain a year ago and a 6 percent decline in revenue but still lifted its yearly earnings outlook.

Kraft faces opposition from a band of vocal supporters of an independent Cadbury.

Felicity Loudon, the granddaughter of former Cadbury Brothers managing director Egbert Cadbury, has also been an outspoken critic of any deal, saying she was "particularly saddened by the possibility of one of the last remaining British icons disappearing into an American plastic cheese company."

In an attempt to appease unions, Kraft has pledged to save some 500 jobs at Cadbury's Somerdale chocolate factory in Bristol, central England, reversing a decision by the British company's board to transfer production of chocolate at the plant to Poland.

But unions say they have not been given a detailed proposal on Kraft's commitment to chocolate making in Britain and point to the U.S. company's decision to shut its Terry's Chocolate Orange factory in York, northern England, four years ago, transferring production to eastern Europe.

Kraft, which also makes Kenco and Maxwell House coffee and Toblerone chocolate, said when revealing its previous bid in September that a merger with Cadbury would create a "global powerhouse."

But Cadbury said the approach "fundamentally undervalued" the business and said that joining Kraft was an "unappealing prospect".

A combination of the two would create a company that generates at least $50 billion in total revenue. Kraft is the largest food company in the U.S. and No. 2 worldwide to Nestle, which would keep its No. 1 position even if Kraft adds Cadbury.

[Associated Press; By JANE WARDELL]

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