Food Fight: Kraft Versus Cadbury

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Kraft Foods (of macaroni and cheese fame) has been in hot pursuit of Cadbury (of creme egg fame). Today the American company made a hostile bid, repeating its $16.4 billion offer that was rejected two months ago. Cadbury turned up its nose immediately, calling the sum "derisory." Now Cadbury shareholders will have three months to take the deal, drive up the price, or walk. Most agree the U.S. food leviathan will have to raise its offer, but warn that it will be nowhere near the price Cadbury says its profitable, tooth-rotting empire of chocolate, soda and gum deserves.

So what's at stake? Cadbury's on a growth path, while Kraft's profits this quarter were less than stellar. But most pundits think the UK brand is bound to give in:

    • Cadbury Shareholders Won't Refuse, says Evan Newmark at the Wall Street Journal. Newmark says that the idea that Cadbury is being offered less than its "true value" is absurd--and exactly the sort of reasoning the hurt Yahoo when it turned down Microsoft's bid. "The only 'value' that really matters is the price any investor is willing to pay for a Cadbury share. And as of today, that's 758 pence, a meager 6% higher than the value of the Kraft bid...In the Cadbury hostile takeover, it will come down to what Kraft and a few big Cadbury shareholders want. And it's hard to see either group wanting Cadbury to stay independent."

    • Kraft Has No Rivals, says Stephen Grocer at the Wall Street Journal. "Kraft had good reason not to increase its offer. Since Sept. 7, no rival bidder emerged for Cadbury; Warren Buffett, Kraft's largest shareholder, had said the previous Cadbury offer was "pretty full;" and some Cadbury shareholders have said they would accept a more modest increase. Simply put: In formalizing its offer, there was no reason for Kraft to bid against itself."

    • Kraft Will Raise Price, But Not Back Down, writes Victoria Howley at Reuters. Howley outlines a few scenarios. She says that Kraft is likely to raise its offer, and that a rival is unlikely to appear. "The North American food group needs to put more than 717 pence before investors, especially with the holiday season approaching, when strong confectionery sales will boost Cadbury's earnings...The chances of a rival bidder or a white knight that is friendly with Cadbury are slightly higher now that Kraft has played its hand, but they are still slim."

    • A Late, Poorly Executed Offer, writes Neil Collins at Reuters. "So far, Kraft has been anything but krafty. Despite having the advantage of surprise, the timing of the approach looks poor. A savvier operator than [Kraft CEO Irene] Rosenfeld would have produced some fizzy figures to support the share price, rather than last week's rather curled-up cheese slices...In short, the first two months of what promises to be a long campaign have been wasted."

    • Europeans Skeptical of Kraft CEO, writes Damien Reece at the London Telegraph. "Today's offer from Kraft was easy for Cadbury to reject...If the Kraft offer was wholly in cash then Rosenfeld might stand a chance but why, as a Cadbury shareholder, would you swap Cadbury shares for Kraft shares? Cadbury is a company reformed, shedding low growth soft drinks and focusing more on higher growth categories such as gum in higher growth markets such as Latin America. Kraft is still a lumbering conglomerate which has some decent performing brands but whose performance is constantly diluted among a sea of mediocrity. I guess in Kraft's US heartlands Rosenfeld's credibility is not at stake, but it certainly is here."

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Benjamin F. Carlson

Benjamin F. Carlson is Executive Editor of The Atlantic Wire.
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