Kraft to formalise original Cadbury offer: report

Posted by Daniel Palmer on 4th November 2009

Kraft Foods is reportedly preparing to formalise its original takeover proposal for UK confectioner Cadbury within a week, without increasing its offer price.

In early September, Cadbury rejected an initial GBP10.2bn (A$18.6bn) stock-and-cash takeover approach from Kraft, arguing that it “materially undervalued” the company.

Kraft now faces a 9 November “put up or shut up” deadline imposed by the UK Takeover Panel to make a firm offer for Cadbury or walk away for six months.

According to a Reuters report, which cited sources close to the situation, Kraft plans to keep a price increase off the table in order to retain the bargaining chip for later in the negotiation process. Such a move would effectively turn Kraft’s bid hostile.

Kraft is due to report its third-quarter results after the market closes today (3 November). The trading update is viewed as crucial to win investor support and dispel Cadbury chairman Roger Carr’s criticisms of Kraft’s “low-growth model”.

In a research note, analysts at Merrill Lynch said that the earnings release provided the US food group with the opportunity to prove “the ‘old Kraft’ is continuing to turn the corner”.

The company is expected to post an increase in operating earnings in the region of 30% on volumes growth of 1%, the analysts said.

Kraft has previously indicated that it aims to improve margins to the “mid teens” by 2011, up from 12.3% last year.

If Kraft is able to post a strong set of third-quarter numbers and this in turn prompts a rise in its stock value, the value of the stock portion of the company’s offer for Cadbury would also be strengthened.

A spokesperson for Kraft declined to comment prior to the release of the group’s results.

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