Cadbury accepts $19.7bn Kraft offer

S Kalyana Ramanathan / London January 20, 2010

The board of UK’s leading confectioner Cadbury Plc today accepted the final takeover offer of US-based Kraft Foods Inc at £11.9 billion ($19.7 billion), ending a six-month resistance and putting on course the creation of the world’s largest confectioner. According to the final offer, Cadbury shareholders will get 840 pence a share, including 500 pence in cash and rest in stock.

Cadbury has agreed to pay a “break fee” of £117.7 million if it withdraws the recommendation. In August 2009, Cadbury rejected Kraft’s 745p-a-share takeover bid, which valued the confectioner at £10.2 billion ($16.3 billion, or Rs 79,000 crore).

Kraft still has to convince Cadbury’s majority of the shareholders to accept the deal by February 2. The deal is subject to counter offers from other suitors like Hershey and Ferrero SpA, with January 25 set as the deadline.

Irene Rosenfeld, chairman and CEO of Kraft Foods, said: “We have great respect for Cadbury’s brands, heritage and people. We believe they will thrive as part of Kraft Foods. This recommended offer represents a compelling opportunity for Cadbury shareholders, providing both immediate value certainty and upside potential in the combined company. For Kraft Foods shareholders it transforms the portfolio, accelerates long-term growth and delivers highly attractive returns, while maintaining financial discipline.”

Roger Carr, chairman of Cadbury, said: “We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage, values and people throughout the world. We will now work with the Kraft Foods’ management to ensure the continued success and growth of the business for the benefit of our customers, consumers and employees.”

Kraft said the purchase would result in at least $675 million in annual cost savings, $50 million more than it had previously estimated, and give the company leading positions in emerging markets, including India, Brazil and Mexico. The purchase should close mid-February, Kraft said.

The offer was accepted amid fears that there might be job losses for Cadbury. It employs 45,000 people in 60 countries, with 5,600 staff at eight manufacturing sites in the UK and Ireland, as well as its Bournville factory near Birmingham. Sky News reported that Prime Minister Gordon Brown had moved to reassure Cadbury workers that their jobs were safe, after the company agreed to the US takeover.

The successful bid by Kraft for Cadbury marked a “very sad day for UK manufacturing”, said Unite, the union of Cadbury, today. Kraft is said to have persuaded large institutional shareholders that an increased bid for Cadbury was enough to swap a 200-year history of growth and independence for a place within the conglomerate’s growing portfolio. Unite said the bid, an estimated £12 billion, and the continued exclusion of workers and key shareholders from the takeover consultation, meant its concerns for Cadbury’s future and the future of nearly 7,000 workers in the UK and Ireland very much remained.

Jennie Formby, Unite’s national officer for food and drink, said: “A successful, iconic, independent UK brand will now be owned by a giant company with massive debt. We have real fears about how Kraft will repay its debt, particularly as it has ratcheted up its offer further to purchase Cadbury. Whatever good intentions Kraft may have towards Cadbury’s workforce, the sad truth is that there will be an irresistible imperative to pay down their debt, and this raises real fears for jobs and investment in this country.”

He added: “We will now be seeking urgent meetings with the senior management of both Kraft and Cadbury for guarantees over jobs and sites in the UK and Ireland to put our members’ fears at rest,” Formby said.

Cadbury considers India as one of its most important markets in its global operations. The £5.4-billion company, which operates out of 60 countries, names India as one its strongest growth drivers among other markets like the US, UK, Australia, France, Mexico, Canada, Brazil, Japan, South Africa and Turkey. Recent investor statements have shown that primary growth for Cadbury in Asia has come from India, with Asia as a market contributing 6 per cent of its total revenues but registering growth at 12 per cent a year, while overall growth has been 7 per cent. It is yet to make strong inroads to China.

Lazard Ltd., Centerview Partners, Citigroup Inc., and Deutsche Bank AG are advising Kraft on the deal. Cadbury has Goldman Sachs Group Inc., Morgan Stanley and UBS AG on its side.