{"id":192049,"date":"2010-01-17T13:54:00","date_gmt":"2010-01-17T18:54:00","guid":{"rendered":"tag:blogger.com,1999:blog-3087194156628161158.post-4160647794083517372"},"modified":"2010-01-17T14:09:02","modified_gmt":"2010-01-17T19:09:02","slug":"bloomberg-kraft-must-raise-cadbury-offer-by-10-survey-shows","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/192049","title":{"rendered":"BLOOMBERG: Kraft Must Raise Cadbury Offer by 10%, Survey Shows"},"content":{"rendered":"

\"\"<\/a>By Andrew Cleary<\/p>\n

Jan. 17 (Bloomberg) — Kraft Foods Inc.<\/a> must raise its hostile 11 billion-pound ($17.9 billion) bid for Cadbury Plc<\/a> by at least 10 percent to stand a chance of capturing the U.K. maker of Dairy Milk chocolate, an investor survey shows. <\/p>\n

Kraft, whose offer is worth about 771 pence a share, needs to raise that to at least 850 pence, the median price named by 9 Cadbury shareholders<\/a>, who together account for about 11 percent of the shares. Responses ranged from 800 pence to 900 pence. A deadline to increase the bid passes on Jan. 19.<\/p>\n


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Cadbury closed at 793.5 pence on Jan. 15, 2.9 percent above the value of Kraft\u2019s bid, reflecting the chance the offer will be raised or a rival suitor such as Hershey Co.<\/a> will emerge. Hershey is stepping up efforts to prepare a bid and plans to make a decision after Kraft\u2019s final offer, according to people with knowledge of the matter. Kraft Chief Executive Officer Irene Rosenfeld<\/a> has vowed to stay \u201cdisciplined\u201d on price. <\/p>\n

\u201cThere\u2019s a lot of value in Cadbury,\u201d said Peter Langerman, CEO of Mutual Series, which is a subsidiary of Franklin Resources Inc., which has a 7.7 percent stake in Cadbury. \u201cWhen you look at the numbers that make sense for both Cadbury and Kraft, their offer is materially lower than that,\u201d he said Jan. 15 in a telephone interview. <\/p>\n

Franklin Resources will reject the bid if it isn\u2019t improved, Langerman<\/a> said. The U.K. company\u2019s second-largest investor, Legal & General Group Plc, said it remains opposed to Kraft\u2019s offer on valuation grounds. <\/p>\n

Kraft spokesman Michael Mitchell<\/a> declined to comment. <\/p>\n

Rival Offer? <\/p>\n

\u201cOur position on Cadbury is unchanged; we continue to believe that the current Kraft bid does not reflect the long- term value offered by the company on a standalone basis,\u201d Mark Burgess<\/a>, head of equities at Legal & General, said in a statement. The insurer owned about 70 million Cadbury shares, a 5.1 percent stake, according to a Jan. 13 filing. <\/p>\n

Kraft will tomorrow raise its bid for Cadbury to at least 820 pence per share, the London-based Sunday Times said, without saying where it got the information. Kraft will boost the cash component of its offer to woo investors who do not want Kraft shares, the newspaper said. <\/p>\n

Warren Buffett<\/a>\u2019s Berkshire Hathaway Inc., the top stockholder in Kraft, voted against the foodmaker\u2019s proposal to issue as many as 370 million shares for the Cadbury purchase, it said Jan. 5. Berkshire said the share-issuance proposal amounted to a \u201cblank check.\u201d Billionaire investor William Ackman<\/a> bought a $950 million stake in Kraft and urged the company to limit the amount of stock in the offer. <\/p>\n

Loan Package <\/p>\n

Rival bidders have until Jan. 23 to decide whether to make a counter-proposal. Cadbury Chief Executive Officer Todd Stitzer<\/a> said last week that Hershey and Cadbury could make an \u201cappealing\u201d combination. Hershey has been drafting commitment letters with its lenders, JPMorgan Chase & Co. and Bank of America Corp., to secure a multi-billion-dollar loan package, according to people with knowledge of the matter. <\/p>\n

\u201cIf Kraft walk away, it\u2019s not the end of the world,\u201d said Andy Brown<\/a>, chief executive officer of Cedar Rock Capital Ltd. in London. \u201cJust because they are the only corporation to have made an offer, it doesn\u2019t mean they\u2019re going to win or that\u2019s what the company is worth.\u201d <\/p>\n

Morgan Stanley Investment Management Inc.\u2019s Ann Thivierge<\/a> said she \u201cwon\u2019t be disappointed\u201d if Kraft\u2019s bid is rejected or the Toblerone maker walks away. Mario Gabelli<\/a>, the chairman and chief executive officer of Gamco Investors Inc., also said his investment in Cadbury doesn\u2019t hinge on a merger. <\/p>\n

Competitive Auction <\/p>\n

\u201cWe don\u2019t mind owning Cadbury for the next five years,\u201d said Gabelli, whose mutual-fund firm owned almost 2.8 million American depository shares in Cadbury as of June 30. <\/p>\n

To be sure, some investors say the lack of a competitive auction means they\u2019re prepared to sell for less than they originally anticipated. <\/p>\n

\u201cAnything with an 8 handle is tempting now,\u201d David Crawford<\/a>, a fund manager at Octopus Investment Ltd. in London, said in an interview. \u201cWith the bid where it is, they don\u2019t have to add much of a premium to get there.\u201d Octopus owns 650,000 Cadbury shares. <\/p>\n

Crawford said he bought his holding after Kraft\u2019s approach for a \u201cshort-term gain.\u201d Cadbury shares closed at 568 pence Sept. 4, the last trading day before Kraft announced its proposal. <\/p>\n

Earnings Multiples <\/p>\n

Jeffrey Scharf<\/a>, president of Santa Cruz, California-based Scharf Investments, said 900 pence-a-share would be \u201ccompelling,\u201d while an offer in the \u201clow 800s\u201d may struggle. Scharf Investments has about 760,000 Cadbury shares. <\/p>\n

In a document sent to shareholders on Jan. 12, Cadbury said comparable deals in the confectionery industry have taken place at multiples<\/a> between 14.3 and 18.5 times earnings before interest, taxes, depreciation and amortization, whereas Kraft\u2019s offer values the company at 12 times 2009 earnings. A bid at 14.3 times Cadbury\u2019s 2009 earnings would come to more than 900 pence a share, according to Bloomberg calculations. <\/p>\n

\u201cKraft have been very smart, and if they win Cadbury they\u2019ll get a bargain,\u201d said Phil Spencer<\/a>, who helps manage 7.4 million Cadbury shares for private clients at Brewin Dolphin Ltd., which has 20 billion pounds under management. \u201cEven if they come back with 850 pence though, it\u2019ll come down to the wire. Cadbury\u2019s defense has been compelling.\u201d <\/p>\n

In response to Kraft\u2019s approach, Cadbury has lifted sales and profitability goals, outlined plans for improving cashflow, and highlighted the benefits of its presence in faster-growing emerging markets from India to Brazil. <\/p>\n

\u201cCadbury\u2019s management haven\u2019t put a foot wrong, they\u2019ve been pugnacious and I can\u2019t fault their defense,\u201d said John Haynes<\/a>, who helps manage 12 billion pounds including 5 million Cadbury shares at Rensburg Sheppards Plc in London. \u201cI would still have problems selling at 850 pence, I don\u2019t think that\u2019s nearly enough for this unique asset. I am absolutely happy to remain a holder for three years.\u201d<\/p>\n

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