Kraft to pursue Cadbury despite initial offer rejection

by Eric Schroeder
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NORTHFIELD, ILL. — Kraft Foods Inc. on Sept. 7 proposed a $16.7 billion takeover of Cadbury P.L.C., an offer that was immediately rejected by the London-based confectionery company as being too low. Despite the rejection, Kraft said it is committed to working toward a combination of the two companies.

In rejecting the offer, Cadbury’s board of directors said, "The board is confident in Cadbury’s standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope and the continued successful delivery of its ‘Vision into Action’ plan. The board believes that the proposal fundamentally undervalues the group and its prospects."

Cadbury shares climbed 41% to 803.5 pence at midday on Sept. 7 on the London Stock Exchange before closing at 783 pence. The company’s shares opened Sept. 8 at 791 pence and had risen to as high as 804.5 pence by mid-morning.

As part of its offer, Kraft proposed paying 300 pence in cash and 0.2589 in new Kraft Foods shares per Cadbury share. The offer would value each Cadbury share at 745 pence and values the entire issued share capital of Cadbury at £10.2 billion ($16.9 billion).

Irene Rosenfeld, chairman and chief executive officer of Kraft, said the proposed combination is about growth.

"We are eager to build upon Cadbury’s iconic brands and strong British heritage through increased investment and innovation," she said. "We have great respect and admiration for Cadbury, its employees, its leadership and its proud heritage. As we have done, Cadbury has built wonderful brands by focusing on quality, innovation and marketing, but we believe the next stage in Cadbury’s development will be challenging, given the increased importance of scale in the industry. Cadbury’s brands, which are highly complementary to our portfolio, would benefit from Kraft Foods’ global scope and scale and array of proprietary technologies and processes."

Ms. Rosenfeld said Kraft plans to continue to "engage with the board of Cadbury on a constructive basis with the goal of consummating a recommended transaction."

Cadbury is one of the world’s largest confectionery companies with No. 1 or No. 2 positions in more than 20 of the world’s 50 largest confectionery markets. The company’s brands include Trident, Dentyne, Cadbury Dairy Milk and Halls.

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