Pizza sale leads to revised Kraft bid for Cadbury

by Eric Schroeder
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NORTHFIELD, ILL. — Kraft Foods Inc. this week revised its bid for Cadbury P.L.C. to include more cash and fewer Kraft Foods shares. The announcement follows Kraft’s $3.7 billion sale of its frozen pizza business in the United States and Canada to Nestle S.A. on Jan. 5.

Under the revised bid, Kraft said it would use the cash from the pizza transaction to offer Cadbury shareholders an additional partial cash alternative of 60p per Cadbury share in place of some of the new Kraft Foods’ shares they would otherwise have received. The actual price of the proposal has not been raised, though.

Kraft’s original bid included 300p in cash and 0.2589 new Kraft Foods shares.

“(We’re) doing this because of the desire expressed by some Cadbury security holders to have a greater proportion of the offer in cash and because Kraft Foods shareholders have expressed a desire for Kraft Foods to be more sparing in its use of undervalued Kraft Foods shares as currency for the offer,” Kraft said. “Kraft Foods continues to believe that its share price is depressed as a consequence of a number of short-term factors, which it believes will dissipate once the uncertainty surrounding its offer from Cadbury is resolved.”

Kraft said it will announce the detailed terms of the partial cash alternative on or before Jan. 19, the last day it has to amend the terms of its offer.

Separately, on Jan. 6, the European Commission cleared the proposed acquisition of Cadbury P.L.C. by Kraft Foods Inc., conditional upon the divestment of the Polish and Romanian chocolate confectionary businesses of Cadbury. The E.C. noted that while the market share of Cadbury is very significant in the United Kingdom and Ireland, the penetration of Kraft’s brands in these markets remains low. In addition, Kraft’s and Cadbury’s brands do not compete closely with each other, given the strong preference of U.K. and Irish customers for traditional British chocolate as opposed to “continental types” of chocolate, the E.C. noted.

“In view of the remedies offered, I am satisfied that the proposed takeover would not adversely affect competition anywhere in Europe and that consumers would not be worse off,” said Neelie Kroes, Competition Commissioner.

In response to the announcement of the E.C.’s conditional approval of the proposed takeover of Cadbury by Kraft, the board of Cadbury reiterated its rejection of the Kraft offer “as fundamentally undervaluing the company and its prospects and has recommended that shareholders do not accept the offer. We have great businesses and brands in Poland and Romania, and we are focused on getting a winning start to 2010.”
In acquiring the pizza business from Kraft, Nestle ended speculation that it was in the running to acquire Cadbury. Just a day prior to the Kraft purchase, speculation that a move to acquire Cadbury was coming gained momentum when Nestle sold its 52% stake in Alcon, the eye care company, to Novartis for $28 billion. Nestle said it plans to use about $9.65 billion of the proceeds to buy back shares. But the company issued a statement Jan. 5 stating that, “After discussions with the U.K. Takeover Panel regarding the potential for further speculation in respect of Cadbury following Nestle’s recent announcements, Nestle confirms that it does not intend to make, or participate in, a formal offer for Cadbury.”

While Nestle is no longer a candidate to acquire Cadbury, The Wall Street Journal recently reported that Cadbury has approached Hershey about a potential bid. The WSJ also indicated that Ferrero S.p.A. and Hershey may be considering a joint offer for Cadbury, with any offer coming as soon as Jan. 23. MBN

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