LONDON (MarketWatch) — One of Cadbury’s top shareholders thinks the U.K. chocolate maker is worth more than $20 billion and wouldn’t back a takeover bid by Kraft Foods along the revised terms that have been reported in recent days.
Speaking in an interview on BBC radio, David Cumming, Standard Life Investments’ head of U.K. equities, said Cadbury’s management team has done a good job and that Kraft would need to pay a “full price” to get long-term shareholders on its side.
“The price in the press I noticed at the weekend, talking about 8 pounds to 8.5 pounds — that would not secure support from companies like ourselves,” Cumming said.
Standard Life said it holds less than 1% of Cadbury shares. The firm is one of the top 20 investors in Cadbury according to figures from FactSet.
The Sunday Times newspaper over the weekend reported that Kraft is preparing to raise its offer to around 820 pence a share ahead of Tuesday’s bid deadline.
Its current offer is worth 300 pence in cash and 0.2589 of its own shares for every Cadbury shares. That valued the bid at 7.69 pounds a share, or around 10.6 billion pounds ($17.3 billion), at Friday’s closing Kraft price.
Shares in Cadbury rose 1.4% on the London Stock Exchange Monday to 8.04 pounds.
Cumming said he expects Kraft to raise its offer, because it needs Cadbury’s faster-growing chocolate and gum operations, as well as its presence in markets such as South America and Asia.
“Kraft is currently a very sort of U.S.-centric amalgamation of relatively low growth businesses like processed cheese, instant coffee and the sort of biscuits you get at coffee mornings,” Cumming told the BBC.
He also said that, even with a bid of around 9 pounds a share, Hershey could still make a counter-offer.
The Wall Street Journal reported late Friday that Hershey plans to offer at least $17.9 billion for Cadbury this week, after concluding that it has the financial muscle to outbid Kraft.
Hershey was working on a finance package including a loan of at least $10 billion from banks including J.P. Morgan Case and Bank of America Merrill Lynch, the report said. It was also expected to include $5 billion in new Hershey shares and at least $3 billion from private investors.
Buffett concerned
While Cadbury’s shareholders have been demanding a better price for their stock, Kraft’s biggest investor — billionaire Warren Buffett — has threatened to vote against a deal if the company offers too many of its own shares.
Buffett’s Berkshire Hathaway said earlier this month that it would vote against the proposal to fund the takeover by issuing millions of new Kraft shares.
Berkshire Hathaway said Kraft stock was a “very expensive currency” to use, though the investment firm added it could change its mind if it concludes the deal doesn’t destroy value. See story on Buffett’s concerns.
The Observer newspaper reported that Kraft is considering sweetening its bid by adding an extra $1 billion in cash, which could lift the value to around 8.20 pounds a share without needing to issue more shares.
Simon Kennedy is the City correspondent for MarketWatch in London.
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