Cadbury PLC emphatically rejected a US$16.28 billion hostile bid from Kraft Foods Inc., setting up what could be a lengthy tussle for control of the British confectioner.
Cadbury’s quick rejection of Kraft Food’s surprise $16.73 billion takeover offer sets up what could be a drawn-out struggle for the iconic UK confectioner, which has long harboured bigger ambitions of its own.
By making its offer official, Kraft effectively appeals directly to Cadbury shareholders to accept a merger proposal that Cadbury’s executives and directors steadfastly rejected in early September.
Kraft, facing lacklustre sales and upward pressure on its raw-material costs, wants to absorb Cadbury to boost its exposure to developing markets and growth prospects.
According to UK takeover rules, by launching its offer Monday, Kraft sets in motion a 28-day deadline for it to publish a prospectus on the offer for Cadbury shareholders.
Kraft would then have as many as 60 days to collect enough shares to seal the deal. That means the takeover fight could last until early February. Should another company launch an interloping bid in the meantime, the takeover battle could drag on even further.
In its swift rejection of the Kraft bid, Cadbury touted its strengths as a standalone business with familiar brands. In a statement, Cadbury Chairman Roger Carr said the company’s board “emphatically rejected this derisory offer and has strengthened its resolve to ensure the true value of Cadbury is fully understood by all.”
He added that Kraft’s offer “does not come remotely close to reflecting the true value of our company”.
Kraft had until 5pm London time Monday to make its offer. The UK Takeover Panel issued a so-called Put Up or Shut Up Order at Cadbury’s request. The order forces Kraft to formalise its takeover offer or walk away for at least six months.
While Kraft chairman and chief executive Irene Rosenfeld had been expected to approach Roger Carr, Cadbury’s chairman, to try to seal a friendly deal before going hostile, it appears no such offer was made as the two sides remain too far apart on price. By going to Cadbury’s shareholders directly, Kraft is effectively seeking to go around Cadbury’s board and executives in an effort to get a better price.
Cadbury recently reported better-than-expected quarterly results, which may bolster the argument of Mr. Carr and Cadbury Chief Executive Todd Stitzer that the company is worth more on a stand-alone basis.
However, the decision on whether to sell the company may largely rest with hedge-fund investors who have piled into Cadbury shares during the past two months. Such investors tend to have a shorter investment horizon and may be willing to sell out for a quick and relatively small profit.