CNN MONEY: Kraft’s Rosenfeld Expects Deal To Close Successfully

By ANJALI CORDEIRO

Of DOW JONES NEWSWIRES

January 19, 2010: 12:37 PM ET

Kraft Foods Inc. (KFT) Chief Executive Irene Rosenfeld, speaking soon after brokering a deal to buy British confectioner Cadbury PLC (CBY), said that she’s confident the acquisition will close successfully and that the newly structured deal no longer requires a vote of approval from her own shareholders.

Kraft on Tuesday announced a sweetened deal for the British confectioner with a new structure including less stock and more cash.

The fact that Kraft is using less stock and no longer requires a vote from its shareholders is significant. Earlier this month, Kraft’s largest shareholder, Warren Buffett’s Berkshire Hathaway Inc. (BRKA, BRKB), said it would vote against the issuance of new stock. Kraft now no longer requires Berkshire to change its vote.

To be sure, while Buffett has not spoken publicly, he could be less critical of the new terms since it involves the issuance of fewer Kraft shares, which he had suggested were undervalued. A Berkshire Hathaway spokeswoman said Buffett was not available for comment.

In the interview, Rosenfeld said her company doesn’t need its investors to sign off on the deal because less stock was being issued. The Kraft shareholder vote no longer is required under the rules of the New York Stock Exchange since new stock being issued is less than 20% of shares outstanding.

Rosenfeld declined to comment directly on Buffett’s reaction to the new terms.

“I have no reason to believe Mr. Buffett doesn’t support my management team,” Rosenfeld said. Buffett’s comments earlier in January had been seen as a rebuke of Kraft.

Earlier Tuesday, Cadbury accepted a GBP11.9 billion takeover offer from Kraft, a deal that ends a bitter four-month battle and nearly 200 years of independence for the U.K.’s largest confectionery company. The U.S. food company, which makes the Toblerone and Milka brands of chocolate, as well as processed cheese and ready-to-eat meals, said it has agreed to pay 840 pence a share for the company as well as a 10 pence dividend, sweetening the original offer and significantly increasing the cash element.

Kraft will pay 500 pence in cash for each Cadbury share as well as 0.1874 new Kraft shares, up from its original offer of 300 pence in cash and 0.2589 new Kraft shares. The original hostile bid had been rejected by the U.K.-based maker of Trident gum and Dairy Milk candy for being “derisory,” and had been criticized by some shareholders for offering too little in cash.

Rosenfeld argued in the interview that despite the higher price, Kraft believes the deal “would deliver attractive economic returns.”

She said that over the course of the transaction, she had conversations with many investors, including Buffett, and they told her there was “tremendous intrinsic value” in Kraft shares. That eventually pushed Kraft to significantly reduce the number of shares in the transaction.

Asked if other bidders might still emerge, Rosenfeld only said that she was confident her agreement with Cadbury would close. Hershey (HSY), far smaller than Kraft and with less financial firepower, is likely to be reluctant to jump in at this stage.

The deal will add 5 cents to Kraft’s per share earnings by 2011.

Rosenfeld said, “It is hard to argue that a deal that is quickly accretive to earning can be bad for our shareholders. It is a transformational transaction.”

Kraft would be able to increase its footprint in developing markets, she said, and get cost savings and faster growth from the combination. Kraft is committing to its dividend and expects to keep its investment-grade rating despite the sweetened bid.

The company is funding the cash portion of its bid through financing from banks that it had arranged for at the start of the takeover battle, proceeds from the sale of its pizza business to Nestle and cash on hand.

“There are revenue synergies and cost savings that will come from the combination that will be able to accelerate the growth of the combined company,” Rosenfeld said.

In India for instance, where Cabdury is strong, Kraft will use that sales network to grow the reach of Kraft brands, she said, whereas in a country like Brazil, Kraft will use its own network to boost Cadbury’s presence.

Closing the lengthy, and sometimes acrimonious, deal would be seen as a positive for Rosenfeld. But Kraft will also face challenges in integrating a giant company with a presence across the globe.

“They are getting an asset that will be very good for them. The price paid will take some justifying. It will take some time before Cadbury contributes to Kraft financially,” said Edward Jones analyst Matt Arnold.

Rosenfeld didn’t say what would happen to Cadbury’s top management, saying only that the company had a lot to work on in coming weeks.

“For a transaction of this magnitude we have been doing a great deal of integration planning…first hundred days planning,” she said, adding that it will be key to ensure that Cadbury maintains its business momentum.

The agreement brings to an end a lengthy battle that often threatened to go sour for Kraft.

“[I] feel quite good about the end results,” Rosenfeld said Tuesday.

Kraft shares, however, were down Tuesday, falling almost 2% to $29.00 in early afternoon trading.

-By Anjali Cordeiro, Dow Jones Newswires

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