US dairy company Kraft Foods (NYSE:KFT), said it was determined to pursue Britain’s best-known confectionery brand Cadbury (NYSE:CBY), whose shares rose in value almost 40% in London trading after the company rejected a £10.2 bln ($16.7 bln) cash and shares offer from the U.S. group, sparking talk of a bidding war. The offer values each Cadbury share at 755 pence (based on Friday’s closing price of $28.42 for a Kraft Foods share and an exchange rate of 1.617 $/£).
Kraft Foods, whose brands include Kenco and Maxwell House coffee, Oreo biscuits, Terry’s Chocolate Orange and Toblerone, as well as cheese products such as Philadelphia and Dairylea, said in a letter to Cadbury that the move would protect jobs in the UK, save Cadbury’s factory in Somerdale near Bristol currently earmarked for closure next year, and allow for new investments in Cadbury’s plant in Bournville, Birmingham, “thereby preserving UK manufacturing jobs.” Kraft also added that the proposed combination is about growth and it wanted to create “a global powerhouse in snacks, confectionery and quick meals.”
“As we have done, Cadbury has built wonderful brands by focusing on quality, innovation and marketing, but we believe the next stage in Cadbury’s development will be challenging, given the increased importance of scale in the industry,” said Kraft chairman Irene Rosenfeld.
Kraft estimated the potential combination could create a company with about $50billion in revenues.
Cadbury put out a statement confirming it had received an “unsolicited” proposal from the American food giant but they rejected it. According to Cadbury, the approach “fundamentally undervalues” the firm, noting that its “strong brands, unique category and geographic scope” left it confident of its future as a standalone firm.
Analysts have raised the prospect of Kraft sweetening its offer based on rumors that Nestle of Switzerland might make a counterbid for Cadbury, perhaps in a joint approach with U.S. chocolate group Hershey Co. In fact, according to a recent report in The Wall Street Journal, which cites a source “familiar with Hershey’s thinking,” Hershey Co. may not let Cadbury be acquired by Kraft Foods or another company without a response. Speaking on Monday, Peter Bulcke, Nestlé’s chief executive, declined to rule out a possible counter-proposal.
Morgan Stanley (NYSE:MS), UBS AG (NYSE:UBS), and Goldman Sachs (NYSE:GS) are advising Cadbury. Lazard Ltd. (NYSE:LAZ) is acting as lead financial adviser to Kraft with Centerview Partners, Citigroup (NYSE:C) and Deutsche Bank (NYSE:DB) also advising.