Don't let Kraft steal us, urges Cadbury group

The maker of Dairy Milk chocolate and Trident gum urged shareholders not to let Kraft "steal your company with its derisory offer".

Analysts believe Kraft will have to return with a higher offer to take the company, because of Cadbury's performance and the bid undervaluing the British chocolate-maker.

The confectionery giant, which employs 800 staff at its Bassett's Liquorice Allsorts plant in Sheffield, said its 2009 underlying sales grew five per cent, rising to six per cent in the second half.

While Cadbury did not give a geographic breakdown of its performance, it added "excellent momentum" has been maintained into 2009, and predicted sales growth of up to seven per cent.

It argued the offer is significantly lower than any other comparable deal in the sector, and its standalone value has risen since the Kraft offer materialised in September. Kraft's cash and shares bid is currently worth 762p a share and values the company at about 10.5bn.

Cadbury chairman Roger Carr also attacked Kraft and its management, whom he claimed have a track record of "overpromising and underdelivering".

"The view of the Kraft offer is pretty universal, and derisory is not an unreasonable view," he said.

"Kraft has an unfocused, conglomerate business model with significant exposure to lower growth categories and a track record of missed financial targets," the company added in its final defence document.

Cadbury said Kraft's offer values it at just 12 times 2009 underlying earnings, compared to other transactions which have been in the range of 14.3 to 18.5 times underlying earnings.

Kraft has already sweetened its offer to include more cash and less stock, but analysts believe a winning bid will need to offer 800p or more.

"Cadbury's final defence document is underwhelming," said a Kraft spokesman. "They have said very little that is new and have ducked the issue of their profitability in 2010. We continue to believe that the certainty and upside potential provided by our offer remains the best option for Cadbury's shareholders."

Cadbury pointed to the fact most of the offer is still in Kraft shares, which it said have underperformed rivals by 42 per cent since Kraft's flotation in 2001.

By contrast, Cadbury said it achieved an operating margin of 13.5 per cent in 2009, compared to a previous forecast of 13.3, and said it would lift its dividend by 10 per cent.

Chief executive Todd Stitzer said: "Our performance in 2009 was outstanding. We generated good revenue growth despite the weakest economic conditions in 80 years."

Cadbury believes its strong performance will continue, forecasting lifting operating margins to 16 to 18 per cent by 2013.

Over the weekend Mr Carr questioned Kraft's ability to raise its offer, after its biggest shareholder Warren Buffett warned the American food giant not to overpay.

Kraft has until January 19 to change its bid, while Cadbury

shareholders have until February 2 to decide. The British confectioner is due to issue further details on 2009 trading after the stock market closes tomorrow.

Swiss food giant Nestl recently ruled itself out of the running and reports last night from an Italian news agency claimed Italy's Ferrero has decided not to bid for Cadbury.

That would further isolate another potential suitor Hershey, which has reportedly struggled over whether to make a rival offer and was hoping to counterbid in partnership with Ferrero.

"While we believe Cadbury will end up being acquired by Kraft, the current offer is inadequate," said analyst Martin Dolan at brokerage Execution.

Analyst Jeremy Batstone-Carr at Charles Stanley said: "We expect Kraft to raise its offer on January 19 and suspect that it may need to pay in excess of 800p (and more likely 820p) in order to have a serious chance of success."

Unite's fears over jobs

A leading trade union yesterday stepped up its fight against Kraft's takeover bid for Cadbury.

Unite warned a bidding war was bad for Cadbury and its workforce, and said a takeover could result in job losses and cuts in pay and conditions.

In evidence to the Commons Business, Innovation and Skills select committee, the union called for a stronger voice to be given to workers during the takeover process.

Deputy general secretary Jack Dromey said: "Takeover policy is shrouded in secrecy and tilted towards profiteering, not the public interest, so much so that the interests of banks and far-off boardrooms come before those of loyal workers and communities."

Jennie Formby, Unite's national officer for food and drink, added: "Two months on from Kraft's initial interest, we are still none the wiser as to Kraft's plans for Cadbury."