Cadbury's takeover by Kraft announced

19 January 2010

Iconic British chocolate maker Cadbury has recommended a takeover by American conglomerate Kraft Foods in a deal that values the maker of Dairy Milk and Twirl at £11.7 billion.

Cadbury's board said the offer of 840p plus a 10p dividend per share was good value after the US giant bowed to shareholder pressure and raised the cash element of its original offer from 300p to 500p.

The improved offer values Cadbury shares at a 50% premium to the price ruling in the market immediately before Kraft made its initial approach back in September.

The consensual deal is a dramatic finale to a takeover battle that has rumbled on since late August, and marks the end of Cadbury's 186 years as an independent company.

Analysts today expressed surprise at the speed at which Cadbury has fallen into Kraft's arms.

Jeremy Batstone-Carr, of Charles Stanley, says: "Although we always considered that 850p could be enough to win shareholder support we have to admit surprise at how meekly Cadbury has apparently acquiesced. The UK-based confectioner has made much, over the duration of the offer period, of the justification for remaining a stand alone business."

Just this week, chairman Roger Carr was predicting the shares could hit £10 in the coming years if it remained independent.

Analyst Gary Hobbs, of Fortis Private Banking, adds: "Many shareholders may have hoped for a higher takeout price but with 25% of the shares in the hands of hedge funds, this offer was always likely to succeed. The chances of a rival bid from Hershey now look remote."

Batstone-Carr says the deal appeals more to institutional investors than private shareholders: "Private investors may elect to hold on, however, we strongly suspect that Kraft shares are unlikely to appeal."

The end of the saga?

Kraft's takeover offer was accepted late last night after a day of frantic negotiations between the two sides and their financial advisers.

Although some shareholders had been holding out for as much as 900p per share, the backing of Cadbury's board is likely to seal the deal.

However, the assimilation of an iconic British brand into a larger American operator will be viewed as a blow to the government just days after Lord Mandelson met with institutional shareholders to encourage them to keep the firm independent.

The US confectionery giant is likely to hold all the major executive positions in the merged entity, with Cadbury chief executive Todd Stitzer and Carr expected to quit with payoffs. In 2008, Stitzer took home total compensation of just over £4 million. There will be fears about the scale of likely job cuts among Cadbury's 45,000-strong workforce.

Cadbury's capitulation comes after a robust five-month defence. Carr described Kraft's first offer of 745p per share as "derisory" and has consistently instructed investors not to let Rosenfeld's firm "steal" the company.

The confectioner's shares soared to a record high of 138p this morning before dropping back.

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