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Kraft, Cadbury close to $19bn friendly deal

London, January 19, 2010

US-based Kraft Foods and Britain's Cadbury are close to sealing a friendly deal to create the world's largest confectionery group for up to 11.7 billion pounds ($19 billion), sources familiar with the matter said on Monday.

Cadbury had steadfastly rejected Kraft's previous 10.5 billion pound hostile takeover bid since a brief conversation between the two sides in late August.

But with a January 19 deadline looming to raise its bid, Kraft chief executive Irene Rosenfeld held talks late into the night in central London with Cadbury Chairman Roger Carr and CEO Todd Stitzer. An agreement was expected to be announced early on Tuesday, sources familiar with the situation told Reuters.

The two sides were discussing a deal valued as high as 850 pence a share for Cadbury, compared to Kraft's current offer of 769p a share, sources said.   

Most, or possibly all, of the increase would be in cash to appease Kraft shareholders, such as Warren Buffett, who opposed issuing more shares to purchase Cadbury.

One source said Kraft had offered Carr the role of chairman of a combined company and Stitzer the opportunity to remain at the helm of Cadbury, but that both executives had yet to decide on accepting.

'Talks are at an advanced stage, and it will be very difficult for Cadbury not to recommend a deal close to 850 pence,' said a second source.   

Rosenfeld had gone door-to-door in London to visit Cadbury investors late last week, with many shareholders saying she mostly listened to their arguments for a higher price. Direct talks with Cadbury began after she took stock of their comments, sources said.

Kraft had been expected to raise its bid by the deadline set by the UK Takeover Panel and many Cadbury investors said they would not contemplate an offer below 800p to 850p per share. Earlier on Monday, major Cadbury shareholder Standard Life said Kraft needed to bid over 900p per share to get its support.

Both Kraft and Cadbury declined to comment.   

Cadbury, the maker of Dairy Milk chocolate beloved by many in the UK as a national treat, had said it sought to remain on its own as long as Kraft's offer undervalued its businesses.   

A deal with the US food group, known for its Oreo cookie and Velveeta cheese brands, would mark the end of independence for a British institution built 186 years ago when John Cadbury opened a shop in Birmingham selling tea and cocoa.

'I identify them with plastic cheese on hamburgers,' said Felicity Loudon, a descendant of Cadbury's founding family, when asked about Kraft in November.   

Unite, Britain's largest labor union, has also opposed a takeover by Kraft, saying the US company would need to lay off tens of thousands of workers to achieve its savings targets in a deal.   

Cadbury's leadership had also encouraged talks with potential rival bidders, particularly Hershey Co, a partner in selling Cadbury's brands in the United States. But Hershey has struggled with the notion of buying a company more than twice its size.

Hershey had been preparing a bid for Cadbury to top Kraft, but 'won't compete at this price level,' a source familiar with the matter said on Monday. Hershey was surprised by news of a possible friendly deal, the source said. - Reuters




Tags: cadbury | Kraft |

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