Kraft wins the battle for Cadbury

The Cadbury board has approved a new increased bid from Kraft Foods. It will now advise its shareholders to accept the new offer of 850 pence a share (including a 10p dividend) – valuing the company at £11.5 billion (€13.1bn). The deal will mark the biggest British takeover since the credit crunch began and one of the most internationally influential.

The independent 186-year-old British chocolate manufacturer accepted the bid after prospects of a rival bid faded and shareholders joined hedge funds in indicating they would accept an improved bid. More than a quarter of Cadbury shares are in the hands of hedge funds which bought them in the hope of a deal. Franklin Templeton, a large US mutual fund with a 7% stake, indicated it would accept 830p. In early trading on Tuesday, 19 January, Cadbury shares were up 3.5%.

Despite a board recommendation is not binding, it would be unusual for a company to continue fighting a takeover when the management has recommended it. Irene Rosenfeld recently met shareholders in London and the US company chose to negotiate a raised offer after calculating that the political risk was manageable.

The deal is a significant increase on earlier Kraft bids, which offered 761 pence per share, valuing the company at £10.5bn ” a bid Cadbury’s chairman Roger Carr said was an attempt to “buy Cadbury on the cheap”. Kraft has sales of £25.7 billion (€29.4bn) a year compared with Cadbury’s £6 billion (€6.8bn).
Cadbury had fought a public campaign to preserve its independence, attracting support from various sources, such as the UK trade unions and Lord Mandelson, the business secretary.

Supporters point out that both Rowntree and Fry’s chocolate company were acquired by foreign competitors who pledged autonomy for the British firms, only to eventually consign them to history. The Rowntree name was abolished in 2008 and Fry’s, owned by Kraft, closed its York factory in 2004.

Trade unions have warned that up to 30,000 jobs would be put at risk by the deal as Kraft would be weighed down by some £22 billion (€25.1bn) in debt. Kraft has a record of aggressive cost-cutting, and the union Unite said that between 2004 and 2008 it shed 19,000 jobs and closed 35 sites to help reduce its debt.

Kraft is likely to commit to protecting jobs at the Somerdale and Bournville sites in the UK, though staff numbers at Cadbury’s head office in Uxbridge are expected to be cut.

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