Business | General
Clock ticks on Kraft's Cadbury takeover
Kraft piles pressure on british firm to justify standalone valuation
- By Lina Saigol, Financial Times
- Published: 00:00 November 11, 2009
London: There was no element of surprise in Cadbury's speedy rejection of Kraft's hostile takeover offer — but it starts the clocking ticking on the US group's bid.
By formalising the same indicative terms it first offered two months ago, the US food group must have anticipated a quick and definitive dismissal from its smaller UK rival.
Kraft is offering Cadbury shareholders 300 pence (Dh18.3) in cash and 0.2589 new Kraft shares for each Cadbury share, which valued the UK confectionery group at an indicative 717 pence a share initially.
The move — which came just four hours before a 5pm Takeover Panel deadline stipulating that Kraft must bid or walk away for six months — triggers the Panel's 60-day takeover timetable.
That buys Kraft time to try to convince shareholders of the merits of its proposal, as well as gauge the price at which they would be willing to pressure the board of Cadbury into considering a deal.
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Till now, Cadbury has claimed that Kraft's offer does not come "remotely close to reflecting the true value" of the company, yet it has done little to demonstrate its worth as a stand-alone entity.
With no suggestion of a counter-bid emerging, Kraft will have been reluctant to put down a higher offer and effectively end up bidding against itself when it has made clear it will maintain a "disciplined" approach in trying to win its UK rival.
The US group now has 28 days in which to post its official offer document to Cadbury shareholders.
That increases the pressure on Cadbury — which has 14 days after that in which to post its defence to investors — to justify its stand-alone valuation.
Provided there are no competing bids, Cadbury has until day 39 to publish new information about its defence, but the latest Kraft will be able to increase the bid is day 46.
Grupo Ferrovial employed similar tactics two years ago in its pursuit of BAA. The Spanish construction and infrastructure group formalised its takeover offer for the UK airports group at the same level of its indicative offer, despite the fact that BAA had already roundly rejected the original terms.
Ferrovial increased its offer once to 900 pence but waited until the last possible minute to raise its bid again. After almost five months of battling, the board of BAA finally recommended a takeover offer from its Spanish suitor of just above 950 pence.
Kraft has raised $9 billion of bridge financing from about nine banks that would allow it to increase the cash component of its offer, which is currently set at 60 per cent equity and 40 per cent cash.
Under Panel rules, bidders need to show that they have committed financing in place. However, the cost of this will increase every day that Cadbury refuses to engage because of the $70 million in commitment fees that Kraft is paying its financing banks.
Kraft is being advised by Lazard, Centerview Partners, Citigroup and Deutsche Bank, while Cadbury is being advised by Goldman Sachs, Morgan Stanley and UBS.
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