Cadbury rejects Kraft, reports robust trading

Britain’s Cadbury (LSE:CBRY.LNews) showcased robust 2009 results and an upbeat outlook on Tuesday in its last move to rebuff U.S. giant Kraft Foods’ (NYSE:KFTNews) 10.5 billion pound ($17 billion) hostile takeover bid.

Analysts said the strong trading was generally positive for Cadbury’s valuation and Kraft needed to come back with a higher offer over the next seven days of the bid timetable to succeed.

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

Cadbury has been fighting Kraft’s cash and share bid, currently worth 762 pence a share, since early September, with investors and analysts saying a winning bid needs to be 800p or above.

Cadbury shares drifted off 1 percent to 773-1/2p by 1320 GMT (8:20 a.m. EST) in line with a lower UK stock market.

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

In a final defense document, the Dairy Milk chocolate and Trident gum maker said Kraft’s “derisory” offer valued it lower than any comparable deal in the sector and that its standalone value had risen since the Kraft bid emerged last September.

“Today, the view of the Kraft offer is pretty universal, and derisory is not an unreasonable view,” Cadbury Chairman Roger Carr told a conference call.

He added the choice for shareholders is between the excellent track record of Cadbury’s management and Kraft’s management which he said had overpromised and under delivered.

“We suspect that an increased offer in the range of 825-850p could well be sufficient to clinch the deal,” said analyst Graham Jones at brokers Panmure Gordon.

Kraft now has until January 19 to change its bid while Cadbury shareholders have until February 2 to decide.

Cadbury says Kraft’s offer values it at a lowly 12 times 2009 core EBITDA profits put against comparable transactions at 14.3 to 18.5 times EBITDA, and the majority of the offer is in Kraft shares which have underperformed its rivals by 42 percent since Kraft’s flotation in June 2001.

Cadbury said its 2009 underlying sales rose 5 percent with the second half accelerating to 6 percent. It achieved an operating margin of 13.5 percent against a previous forecast of 13.3 percent and said its 2009 dividend would rise 10 percent.

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

Stitzer and Carr in dismissing Kraft’s offer have questioned the ability of Kraft CEO Irene Rosenfeld to raise her bid after Kraft’s top shareholder Warren Buffett last week warned the company not to overpay and issue too many new Kraft shares.

They are confident of meeting Cadbury’s longer-term targets which include annual sales growth of 5 to 7 percent from 2010, lifting operating margins to 16 to 18 percent by 2013 and achieving double-digit dividend growth for 2010 and beyond.

Meanwhile, some Cadbury shareholders have rejected a meeting with Kraft’s Rosenfeld, with Cadbury’s Carr saying that he was amazed it had taken Kraft so long the reach out to them.

“I do understand some are (meeting them) and some have rejected a meeting from Kraft,” Carr said.

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 don’t seem to have anything very interesting to say to us.”

Analyst Andrew Wood at Sanford Bernstein said: “Should Kraft not significantly raise its bid, we would expect that Cadbury shareholders would not accept the offer.”

Cadbury had been allowed by Britain’s Takeover Panel to give further details on 2009 trading after the UK stock market closes on Jan 14. at around 1630 GMT.

Last week, Swiss food group Nestle (VTX:NESN.VXNews) ruled itself out of a Cadbury auction. Sources told Reuters on Monday that Italian chocolate maker Ferrero was very close to deciding on whether to make a counterbid in tandem with U.S. giant Hershey (NYSE:HSYNews).

Cadbury’s labor union was set to warn British lawmakers on Tuesday that a potential bidding war for the confectioner would undermine workers’ rights.

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