Cadbury Rejects Kraft's 'Derisory' $16B Takeover Bid

By Christine Caulfield

Law360, New York (November 09, 2009) -- Kraft Foods Inc.'s buyout bid for Cadbury PLC turned ugly Monday when the U.S. food conglomerate made formal its previously rebuffed $16.3 billion takeover offer and the U.K. candymaker "emphatically rejected" it.

The unsolicited proposal, which was rejected by Cadbury's board of directors when first announced on Sept. 7, has now been put directly to the company's shareholders.

Kraft's offer – which values each Cadbury share at £7.17 ($12) – has not been raised from its original bid, as was expected, but the Northfield, Ill.-based company said the proposal still represented a substantial premium on Cadbury's share price.

Not surprisingly, Cadbury chairman Roger Carr called Kraft's overture “derisory” and said the company's board resoundingly rejected it.

“The repetition of a proposal which is now of less value and lower than the current Cadbury share price does not make it any more attractive,” Carr said.

“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,” he said.

Cadbury shareholders are being offered £3, or $4.90, in cash and 0.2589 new Kraft shares for every one of their Cadbury shares.

“We remain convinced of the strategic merits for both companies of combining Kraft Foods and Cadbury,” Kraft chairman and CEO Irene Rosenfeld said in a formal offer statement.

“We believe that our proposal offers the best immediate and long-term value for Cadbury's shareholders and the company itself, compared with any other option currently available, including Cadbury remaining independent,” Rosenfeld added.

But Cadbury's board is urging shareholders to reject the offer in favor of the company remaining independent, saying Kraft's bid represented an implied value 4 percent lower than the original, based on the fall in Kraft's share price.

“I am confident Cadbury will deliver significant value, which should accrue wholly to our shareholders,” Carr said.

The panel that oversees mergers and acquisitions in the U.K had given Kraft until Monday to decide whether to make a formal offer or retreat for six months following Cadbury's initial rebuff.

Cadbury is one of the world's largest confectionery makers, with brands including Dairy Milk, Crème Egg, Flake and Trident chewing gum. Kraft is the world's second-largest food company, with brands such as Ritz Crackers, Chips Ahoy, Cheez Whiz and Cool Whip.

Other companies may be anxious for a bite of Cadbury, or at least have an interest in keeping the chocolate maker out of Kraft's hands.

The Wall Street Journal reported earlier that Hershey Co. was likely to respond to Kraft's surprise bid, citing unnamed sources who said that Cadbury was the last significant candy company up for grabs.

The candy business is in the midst of consolidation. The most significant deal last year involved Mars Inc. snapping up Wm. Wrigley Jr Co. in a $23 billion deal, which combined brands such as M&Ms, Snickers, Dove, Orbit, Doublemint, Uncle Ben's, Pedigree and Whiskas, among others.

Gibson Dunn & Crutcher LLP is advising Kraft. The team is led by New York-based corporate partner Barbara Becker, and includes corporate partners Jim Moloney, Rashida La Lande and Andrew Fabens, as well as associates Matthew Walsh and Sophie Bernabe.

Shearman & Sterling LLP is advising Cadbury in connection with Kraft's bid. The team is led by London M&A partner Creighton Condon and includes partners George Karafotias and associates Sean Skiffington and Jessica Delbaum.

--Additional reporting by Anne Urda and Liz McKenzie