By Duane D. Stanford and Andrew Cleary
Nov. 9 (Bloomberg) -- Cadbury Plc, the maker of Dairy Milk chocolate, rejected Kraft Foods Inc.�s unsolicited takeover offer of 9.8 billion pounds ($16 billion) after Kraft stuck to the terms of its initial bid.
Kraft offered 300 pence in cash and 0.2589 new Kraft share per Cadbury share, the same as a bid made public Sept. 7, the Northfield, Illinois-based company said today in a statement. As of last week�s closing prices, the bid values Cadbury at 717 pence a share, below the current price. Cadbury recommended that investors reject the offer because Kraft�s stock drop has caused the value to decline from its initial 745-pence level.
The formal offer may be a starting point for talks with Cadbury, said Jane Coffey, who helps oversee $12 billion at Royal London Asset Management, which owns Cadbury shares. Cadbury has said it�s confident in its prospects as an independent entity, calling the original proposal from Kraft Chairman and Chief Executive Officer Irene Rosenfeld an �unappealing prospect� from a �low-growth� conglomerate.
�The question is does this bring Cadbury to the table to try and negotiate an offer closer to 8 pounds,� Coffey said. �It�s part of the normal strategy that Kraft would want an agreed bid.�
Cadbury shares fell as much as 2.4 percent after Kraft�s announcement, before erasing their decline. They advanced 1.5 pence to 759.5 pence at 3:45 p.m. London time.
Kraft declined 22 cents to $26.56 at 10:41 a.m. in New York Stock Exchange composite trading.
�Less Value�
�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,� Cadbury Chairman Roger Carr said in a statement today that recommended shareholders reject the bid.
Kraft reiterated the deal would produce at least $625 million in annual pretax cost savings by the end of the third year after closing. The company said it will use available resources for the cash portion of the deal, including a 5.5 billion pound senior unsecured term loan facility. The financing is being led by Citigroup Inc. and Deutsche Bank AG.
Kraft�s lead adviser is Lazard Ltd. Centerview Partners, Citigroup and Deutsche Bank and are also advising Kraft. Cadbury is being advised by Goldman Sachs Group Inc., UBS AG and Morgan Stanley.
A deal would push Kraft, the fourth-largest candy and chocolate maker by market share, past Mars Inc. as the world�s largest confectioner. The London-based maker of Creme Eggs would give Kraft greater ability to bolster its brands in the U.K. and to break into developing markets including India. It would be the biggest cross-border acquisition this year.
Global Expansion
�One of the biggest factors is getting at the global infrastructure that Cadbury�s built,� Christopher Growe, an analyst with Stifel Nicolaus & Co. in St. Louis, said in a Nov. 6 telephone interview. �It would give Kraft a real head start in some emerging markets.�
Growe, who recommends holding Kraft, expected the bid to be increased to 750 pence to 775 pence.
The bid values the confectioner at 26 percent more than on Sept. 4, the last trading day before the initial bid was made public. The combined company will have annual revenue of $50 billion, Kraft has said.
On Oct. 21, Cadbury increased its full-year profitability and revenue forecasts on higher sales of Trident gum and Wispa Gold chocolate.
Buffett�s Stake
Warren Buffett, the billionaire whose Berkshire Hathaway Inc. is Kraft�s largest shareholder, said in an interview with CNBC in September that the offer for Cadbury is �pretty full� as it stands, and that Kraft�s pursuit is a �tough game.�
�I�m not sure what kind of appetite Cadbury holders have to hold on while these two slug it out for the next six months,� said William Hobbs, who helps manage 134 billion pounds in assets, including Cadbury shares, at Barclays Wealth in London. �Anything under 800 pence is still a pretty chunky discount to what we could get.�
Investors including Hobbs and John Haynes, who helps manage 12 billion pounds including Cadbury shares at Rensburg Sheppards Plc in London, said Kraft is under no pressure to offer a significantly higher price unless competing bidders emerge.
Kraft has been �aided by the apparent absence of other interested parties,� Hobbs said. Analysts have speculated that white-knight bidders including Switzerland�s Nestle SA and Hershey Co. may make competing offers.
Melanie Kohli, a spokeswoman for Nestle, declined to comment. Kirk Saville, a Hershey spokesman, said the company doesn�t comment on merger and acquisition issues as a matter of policy.
WatchNov. 9 (Bloomberg) -- Donald Yacktman, chief investment officer at Yacktman Asset Management Co., talks with Bloomberg Carol Massar, Jon Erlichman and Adam Johnson about Kraft Foods Inc."s bid to acquire Cadbury Plc. Kraft stuck to its initial bid in an unsolicited offer to buy Cadbury for 9.8 billion pounds ($16 billion). Cadbury, the world�s second-largest candy and chocolate maker, rejected Kraft"s offer, saying the offer is now worth less and the initial proposal had already undervalued the company.
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