London: Kraft Foods (KFT.N) chief Irene Rosenfeld stuck to her guns in the pursuit of candy maker Cadbury (CBRY.L), refusing to sweeten her $16.4 billion offer, triggering a bid battle that could last up to three months.
The North American food giant Kraft on Monday repeated the cash and shares terms of its original approach, which Cadbury rejected two months ago, and took its bid, now worth 4 percent less after a fall in Kraft shares, directly to Cadbury shareholders.
Cadbury lost no time rejecting the "derisory offer," as chairman Roger Carr termed it.
Kraft's Rosenfeld has repeatedly insisted she will not overpay for Cadbury, while Cadbury's chief executive Todd Stitzer has said a link-up with Kraft made no strategic sense and it has a strong future as an independent sweetmaker.
"We remain convinced of the strategic merits for both companies of combining Kraft and Cadbury," Rosenfeld said in the formal offer statement.
Cadbury's shares fell sharply to 739p after the unchanged bid terms were announced but had edged back to stand up 0.3 percent at 760p by 1445 GMT (9:45 a.m. EST).
"Kraft's offer does not come remotely close to reflecting the true value of our company, and involves the unattractive prospect of the absorption of Cadbury into a low-growth conglomerate business model," Cadbury's Carr said.
The formal bid values Cadbury shares at 713p or 9.8 billion pounds ($16.44 billion), compared with 745p a share, or 10.2 billion pounds, at the time of Kraft's approach in September.
"It's all a bit of an anticlimax ... I think something closer to 9 pounds -- not scraping over 8 pounds -- will have us scrambling for our calculators," one top 25 Cadbury investor told Reuters.
Analyst Clive Black at broker Shore Capital said, "The process will be drawn out, and they will come back with a higher offer, although not as high as some are speculating about."
Kraft is offering Cadbury shareholders 300p in cash and 0.2589 new Kraft shares for each Cadbury share, unchanged from the September offer. Kraft's move now gives it 28 days to post its official offer document to Cadbury shareholders, which will then trigger the 60-day bid timetable under UK takeover rules.
"There's a good chance they (Kraft) will have to increase this a little bit. "I still think the cash side is likely where they have the opportunity to make it more attractive to Cadbury shareholders," said Matt Arnold at broker Edward Jones.
The bid for the maker of Dairy Milk chocolate and Trident gum from the Oreo cookie and Velveeta cheese group was expected after the UK Takeover Panel had ruled that Kraft had to make a formal bid by 1700 GMT (noon EST) Monday or walk away for six months.
Cadbury is the world's second-largest confectionery group, while Kraft is number five, with brands such as Toblerone, Cote D'Or, Terry's and Suchard. Bringing them together would pip privately owned Mars-Wrigley to the global No 1 spot.
"If you bolt Cadbury onto a very slow-growing Kraft business, the overall returns over the long term or even the medium to long term are going to be lower than just having shares in the faster growing Cadbury bit," said the top 25 shareholder.
Bureau Report
First Published: Tuesday, November 10, 2009, 00:09