Cadbury urges Kraft deal "no" vote

Confectioner Cadbury (CBRY) has dismissed the hostile bid from US suitor Kraft as "worse than the proposal the board previously rejected for fundamentally undervaluing the company".

The US processed food giant has swooped in on its bid target just hours before the deadline set by the Takeover Panel with an offer of 300p in cash and 0.2589 Kraft shares for each Cadbury one held - unchanged from Kraft's initial announcement in September.

At current exchange rates, this values each Cadbury share at 717p - around 4% lower than during the initial approach.

Cadbury is recommending that shareholders reject the offer.

Roger Carr, chairman of Cadbury, said: "The repetition of a proposal which is now of less value and lower than the current Cadbury share price does not make it any more attractive.

"As a result, the board has emphatically rejected thisderisory offer and has strengthened its resolve to ensure the true value of Cadbury is fully understood by all.

"Kraft's offer does not come remotely close to reflecting the true value of our company, and involves the unattractive prospect of the absorption of Cadbury into a low-growth conglomerate business model," he added.

Kraft first approached Cadbury back in September with £10.2 billion merger deal putting a745p price tag on each share.

Cadbury was quick to rebuff Kraft's advances, saying that the potential amount on the table "fundamentally undervalues" the group. Analysts have pointed out there are some merits in a tie-up.

David Buik of BGC Partners says: "Last week Kraft's results were very disappointing and this processed food titan needs to broaden its horizon in terms of products and brands. Cadbury brings chewing gum and confectionary to Kraft's party and also great presence in Europe and emerging markets.

"There is tremendous synergy between these two operations."

However, recent falls in the US suitor's share price means the bid is now worth around 720p a share valuing the company at £9.8 billion.

In contrast, Cadbury's shares have been notching up the gains since the summer, up around 30% to 758p.

In its third-quarter results, the Dairy Milk maker saw underlying sales between July and September climb 7% excluding the impact of currency fluctuations.

This marked its fastest quarterly sales rise of the year and far above analyst expectations for a 4% jump.

It consequently raised its full-year sales target by one percentage point to 5% and pencil in a 1.35 percentage point jump in its operating margin from previous forecasts of between 0.8% and 1%.

It also upped its forecast for revenue this year to "around the middle" of its previous guidance of 4-6% growth. It had previously targeted the lower end of the revenue growth rate.

Reports suggest that some of the bigger shareholders are not immune to a deal but would not be drawn to the negotiating table for less than 820p a share.

Equity strategist at Charles Stanley, Jeremy Batsone-Carr, commented: "We continue to believe that Kraft will need to offer up to 850p per share (or its equivalent including a raised cash component) in order to be more certain of success.

"Kraft probably does need Cadbury more than Cadbury needs Kraft, a reflection of the former's relatively pedestrian top line performance over the past four quarters."