The Shadow
LONDON (AP) – British candy maker Cadbury PLC on Tuesday stepped up its defense against a hostile takeover bid from Kraft Foods Inc. by announcing that full-year results will beat market expectations and pledging a 10 percent hike in dividend payments.
Cadbury said Kraft’s $16.5 billion bid was too low and that the share portion of the offer was unappealing because of the Illinois company’s “poor track record of delivery.”
“Don’t let Kraft steal your company with its derisory offer,” Cadbury chairman Roger Carr said to shareholders.
Kraft responded that Cadbury’s defense was “underwhelming.”
“They have said very little that is new and have ducked the issue of their profitability in 2010,” Kraft said in a brief statement.
Cadbury shares fell slightly following the announcement, but market analysts remained convinced that Kraft’s bid would fail unless it increases a cash and shares offer which now values Cadbury at 10.8 billion pound ($17.4 billion).
Shares in the British company were down 0.6 percent at 776.5 pence at midday on the London Stock Exchange, compared to Kraft’s offer of 763 pence per share.
“We continue to think that Kraft will need to come up with an offer north of (800 pence) and with a significantly enhanced cash component to take out Cadbury,” said Martin Deboo, analyst at Investec Securities.
Kraft, based in Northfield, Ill., is also under pressure from its biggest shareholder, billionaire investor Warren Buffett, not to sweeten its offer with more shares, which he believes are undervalued.
Time is running short: Kraft has until Jan. 19 to raise its offer, and the deadline for winning acceptances from a majority of Cadbury shareholders is Feb. 2.
Cadbury plans to release a preliminary report of its 2009 earnings on Thursday in hopes of convincing shareholders not to take up Kraft’s current offer.
Kraft, whose products include Velveeta cheese and Oreo cookies, is “an unfocused, conglomerate business model with significant exposure to lower growth categories and a track record of missed financial targets,” Cadbury said.
The maker of Dairy Milk chocolate and Dentyne gum, Cadbury said it would pay dividends totaling 18 pence per share for 2009, a 10 percent increase from 2008.
It said it expected to report a 5 percent growth in business revenue for 2009, or 11 percent higher on an actual currency basis. It said it had improved its trading margin by 1.55 percentage points to 13.5 percent.
Last week, Kraft sold its North American pizza business to Nestle for $3.7 billion, and used the proceeds to post an alternative offer with a greater cash component, up from 300 pence to 360 pence. It did not, however, raise the total value of its bid.
Kraft shares are currently worth 42 percent less than in the initial public offering price in 2001, Cadbury said.
Cadbury said Kraft’s offer equals 12 times earnings before interest, taxes, depreciation and amortization, while comparable transactions in the sector have ranges from 14.3 to 18.5 times EBITDA.
Analysts at Panmure Gordon said that higher range implied that Cadbury was worth 900 pence or more, but “we suspect that an increased offer in the range of 825 pence-850 pence could well be sufficient to clinch the deal.”
“Kraft’s offer is very significantly below all comparable transactions in the sector; applying any of the comparable multiples would imply a price per share far above Kraft’s offer,” said Carr.
Cadbury says it will publish further preliminary details of its 2009 results on Thursday.
“Looking forward to 2010, we are targeting revenue growth within our 5-7 percent goal range,” said Cadbury CEO Todd Stitzer.
“We expect benefits from our restructuring and reconfiguration actions in 2010 to drive continued progress to achieve our targets of good mid-teens margin by 2011 and 16-18 percent margin by 2013,” he added.
In an interview with the British Broadcasting Corp., Carr added that Kraft would have to make deep cuts in Cadbury in order to make the takeover work.
“For Kraft to make this pay for their shareholders, they have to attract huge synergies. Synergies is a euphemism for heavy cost cuts and inevitably plants and jobs would be lost,” Carr said.
“That’s what happens with a takeover.”
