Kraft boosted as Ferrero quits Cadbury race

Italy's Ferrero has decided not to bid for Cadbury Plc, further strengthening the case of Kraft Foods in its 10.5 billion pound ($17 billion) takeover bid for the British chocolatier.

A source close to the situation told Reuters that Ferrero would not proceed with a bid. A second source close to Ferrero said the company had ceased talking with Hershey, a potential partner in a rival bid.

Hershey has struggled to assemble a bid for Cadbury and the Ferrero decision cast greater doubt on its ability to make an offer. Hershey officials would not comment on whether it would proceed with an offer. Last week, Swiss food group Nestle ruled itself out of a Cadbury auction.

Ferrero's decision came as Cadbury made its final case against the Kraft bid, delivering higher margins and promising a raised dividend, but the US food group was still expected to succeed by slightly improving its offer.

The Dairy Milk chocolate and Trident gum maker said Kraft's "derisory" offer valued it below that of any comparable deal in the sector.

"Our shareholders are very clear, our independent stand-alone value is much preferred to the bid which is on the table. We do have good support," Cadbury Chief Executive Todd Stitzer said in an interview.

Kraft, meanwhile, raised its 2009 profit forecast on Tuesday and said it was well-positioned for "sustainable top-tier performance, with or without Cadbury..".

Kraft has until January 19 to raise its cash-and-stock bid, now worth about 762 pence per Cadbury share. Analysts and some Cadbury investors have said that an offer of 800p and above would be hard to resist.

"While we believe that Cadbury will end up being acquired by Kraft, the current offer is inadequate," said analyst Martin Dolan at brokerage Execution. "We remain holders with a (share) price target of 8 pounds."

Martin Deboo, an analyst at brokerage Investec Securities, said "Kraft will need to come up with an offer north of 8 pounds and with a significantly enhanced cash component to take over Cadbury."

Cadbury shares closed off 0.5 per cent at 775.6p on Tuesday. Kraft's shares rose 19 cents to $28.99, meaning that Cadbury shares were trading at a 1.5 per cent premium to the current value of Kraft's offer.

Kraft may release some details of its own fourth-quarter results in the next week to bolster its case, analysts said. It could also raise the cash portion of its bid a second time, even before making what is expected to be a raised best and final bid next week, they said.

"If they know enough that they are going to beat estimates, they would probably try to put something out," Edward Jones analyst Matt Arnold said.

CARR VS ROSENFELD

Cadbury reported a 5 per cent rise in 2009 underlying sales, with the second half accelerating to 6 per cent. It achieved an operating margin of 13.5 per cent against a forecast of 13.3 percent, and promised a 10 per cent rise in the 2009 dividend.

"Our performance in 2009 was outstanding. We generated good revenue growth despite the weakest economic conditions in 80 years," Stitzer said.

Cadbury Chairman Roger Carr said the choice for shareholders was between the excellent track record of Cadbury's management and Kraft's leadership under CEO Irene Rosenfeld, which he said had failed to deliver on its promises.

Stitzer and Carr have questioned Rosenfeld's ability to raise her bid after Kraft's top shareholder Warren Buffett came out in opposition to a share issue to fund the deal.

Kraft called Cadbury's final defense "underwhelming" and said the company ducked the issue of 2010 profitability.

"We continue to believe that the value certainty and upside potential of our offer remains the best option for Cadbury's shareholders," a Kraft spokeswoman said in a statement.

Cadbury said Kraft's offer values it at a lowly 12 times 2009 core EBITDA profit against comparable transactions at 14.3 to 18.5 times EBITDA. It noted that most of the offer is in Kraft shares, which have underperformed rivals by 42 per cent since Kraft's flotation in June 2001.

Cadbury also said some of its shareholders have turned down an offer by Kraft to meet with Rosenfeld in London later this week. Carr said he was amazed it had taken Kraft so long to make such a direct approach.

One top 30 Cadbury investor told Reuters: "Companies do their talking partly by picking their phone up and partly by their actions. At the moment, Kraft (representatives) don't seem to have anything very interesting to say to us."

Cadbury can still give more details on 2009 results after Britain's stock market closes on January 14. Its investors have until February 2 to respond to Kraft's offer.

 

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