Cadbury on Monday rejected a hostile cash and shares bid from Kraft that valued the UK confectionery group at £9.8 billion ($16.5 billion) or 717p a share, after the U.S. foods group formalized the terms of an indicative offer it made two months ago.
Shares in Cadbury, which had been trading higher in morning trading in London, fell 15p or 2 per cent to 743p after Kraft announced its bid.
Describing the offer as "derisory", Cadbury noted that the cash price per share and exchange ratio were unchanged from Kraft's indicative offer, but the fall in Kraft's share price since then meant that the implied value for each Cadbury share was around 4 percent lower.
The bid offers 300p in cash and 0.2589 Kraft shares for every Cadbury share -- the same terms that Kraft chief executive Irene Rosenfeld offer Cadbury chairman Roger Carr in late August.
Carr rejected that offer -- which at the time valued Cadbury at 745p a share -- without making it public, leading Kraft to announce its proposal in early September.
Top Cadbury shareholders have supported Carr's decision to reject the proposal, and have consistently said they will not seriously consider any offer that values Cadbury at less than 800p a share.
Investors had been hoping for a higher offer from Kraft, with many also looking for a higher proportion of cash.
Kraft said its offer was pitched at an enterprise value of 13.9 times Cadbury's underlying ebitda (earnings before interest, taxes, depreciation, and amortization), noting that Cadbury paid 12.8 times historical ebidta when it bought the Adams chewing gum business in 2002.
It said a successful acquisition of Cadbury would lead it to revise its long-term revenue growth targets to more than 5 percent, from 4 percent, and its earnings per share growth targets to 9-11 percent, from 7-9 percent.
The U.S. food group noted that no other companies had shown interest in buying Cadbury to date. "Kraft Foods believes it is the most logical acquirer of Cadbury," it said in its proposal.
"We remain convinced of the strategic merits for both companies of combining Kraft Foods and Cadbury," Rosenfeld said. "We believe that our proposal offers the best immediate and long-term value for Cadbury's shareholders and for the company itself compared with any other option currently available, including Cadbury remaining independent."
But Carr responded in a statement: "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. As a result, the board has emphatically rejected this derisory offer and has strengthened its resolve to ensure the true value of Cadbury is fully understood by all."
© The Financial Times Limited 2009
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