Kraft makes hostile bid for Cadbury

After deadline for deal passes, U.S. food company takes $16.3 billion offer to shareholders of the British candy maker.

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By David Goldman, staff writer

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NEW YORK ( -- Kraft Foods launched a $16.3 billion hostile takeover bid Monday for British candy company Cadbury after the deadline for the initial bid passed without a deal.

Cadbury, which initially rejected Kraft's $16.7 billion offer in early September, spurned the deal again Monday.

"Cadbury is an exceptional standalone business," said Roger Carr, chairman of Cadbury, in a statement. "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."

Kraft did not increase its bid for Cadbury before taking the matter to shareholders.

"We remain convinced of the strategic merits for both companies of combining Kraft Foods and Cadbury," said Kraft Chief Executive Irene Rosenfeld, in a statement. "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."

Details of the offer. Kraft has 28 days to draft a proposal to Cadbury's shareholders and 60 days to round up a majority of shareholders to vote the deal through.

Northfield, Ill.-based Kraft, a component of the Dow Jones industrial average, is offering Cadbury's shareholders $5 in cash and 0.26 share in Kraft. For each Cadbury American depositary share (ADS) -- shares of the company that are traded in the United States -- Kraft is offering stockholders $20 in cash and 1.04 shares in Kraft.

That values each share of Cadbury at £7.17 ($11.95), a 26% premium over Cadbury's closing share price of £5.24 ($9.47) on Sept. 4, which was the last trading day before Kraft's initial Sept. 7 bid for the company. Kraft argued that the deal also values Cadbury favorably because the offer represents a value 29 times the candy maker's diluted earnings per share.

Cadbury urged shareholders not to accept Kraft's bid, saying it will soon give more details to shareholders to explain why it believes Kraft's offer "falls well short of reflecting the value of Cadbury."

Shares of Kraft (KFT, Fortune 500) fell 1% in midday trading. Cadbury (CBY) shares rose 1% after trading down as much as 2% earlier in the morning.

Not a done deal. Cadbury noted in its defense of its rejection that Kraft shares have fallen since the initial bid, devaluing the deal by nearly 4%.

Some analysts said they were surprised that Kraft didn't up its own bid, since standing pat may have hurt Kraft's standing with Cadbury shareholders.

"Kraft CEO Irene Rosenfeld has promised to be disciplined in [the company's] pursuit of Cadbury, but we don't think this offer has much chance of success," said Craig Hutson, analyst at GimmeCredit.

Hutson said Kraft should have taken cues from Inbev's battle to buy Anheuser-Busch in 2008. Anheuser initially rejected Inbev's deal, but Inbev raised its offer by about 8%, even though there were no other bidders. That eventually sealed the deal.

"Kraft has not felt a compelling need to bid against itself, but we think this is a tactical mistake to not up the bid to throw a bone to Cadbury shareholders who might be on the fence," Hutson added.

Hutson noted that the deal will be attractive to shareholders because of its 26% premium over Cadbury's stock price, but Cadbury has impressed with its financial results recently. As a result, Hutson said Kraft may have overstated the value of the deal. To top of page

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