Cadbury blasts takeover offer

14 December 2009

Confectionary giant Cadbury has blasted Kraft's "derisory offer" amid speculation it is planning its own merger with US company Hershey.

The chocolate and sweets maker says it continues to "unanimously reject Kraft's wholly inadequate offer as it substantially undervalues Cadbury and recommends shareholders reject the offer".

Kraft launched a £10 billion hostile takeover bid last month, just before the Takeover Panel's 'put up or shut up' deadline kicked in. Its unapproved offer worked out at 718p a share - well below the 800p level at which Cadbury's shares are trading.

Roger Carr, chairman of Cadbury, says: "Kraft is trying to buy Cadbury on the cheap to provide much needed growth to its unattractive low-growth conglomerate business model.

"Cadbury is an exceptional business worth much more than the offer put forward by Kraft. It is clear to all that Cadbury is a particularly attractive asset in the sector with iconic brands, a sharp category focus and an enviable geographic footprint."

Cadbury has sought to reassure investors over its future as an independent company with news of stronger sales and higher profit margins.

In a circular to shareholders, it reiterated that it has upped long-term performance targets and said profit margins for the current year were expected to be higher than the firm's original guidance.

It raised its underlying annual sales growth target to between 5% and 7% from its previous 4% to 6% range - and sees operating margins by 2013 in a range of 16% to 18% after looking for good mid-teens margins by 2011, compared with 11.9% in 2008.

Cadbury also looked to double-digit percentage rises in dividend payouts from 2010 onwards, and a higher rate of converting operating profits into cash flow also from 2010. In 2008, Cadbury's dividend increased 6% to 16.4p a share.

Its chocolate division has seen continued growth with further improvements in gum and "excellent" progress being made in Candy.

"Our emerging markets, led by India, Middle East and Africa and South America, continue to show strong momentum. In developed markets, we continued to deliver robust growth in the UK and strengthening growth in the US," Cadbury adds.

Weekend media speculation suggests that Cadbury is eyeing a tie-up with Hershey, the US confectioner which already owns the licence to make Dairy Milk bars and Cadbury Creme Eggs in the US. Italy's Ferrero is also rumoured to be considering a bid.

Analyst Jeremy Batstone-Carr, of Charles Stanley, says: "While we have never regarded potential interest from Ferrero or Hershey as amounting to the likelihood of a competing hostile approach, some form of trading partnership could form part of a so-called 'white knight' relationship designed to maintain the status quo in global confectionary manufacturing.

"Either that or alternatively the possibility of stake building in Cadbury aimed at effectively blocking Kraft from establishing the necessary shares to gain control once the offer period runs out."

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