Ending months of jousting, the bid seems to shut out The Hershey Co., which had been mulling an offer but was seen Tuesday as unlikely to go higher than Kraft.
Kraft [image-nocss] raised its offer 9% to $19.5 billion (11.5 billion pounds) to win over the board at Cadbury LLC, the British maker of Cadbury Dairy Milk and other chocolates and Trident, Dentyne, Bazooka and other gum.
Based in Northfield, Ill., Kraft already is the world's second-largest food company with such products as its namesake cheese, Oreo cookies and other packaged foods.
The combined company would have 40 major candy and gum brands and more than $50 billion in annual revenue, and its market share would edge out Mars Co. at the top of the candy industry.
CEO Irene Rosenfeld sees Cadbury as a means to move Kraft from a U.S.-centric business, with a focus on full meals, toward being world's leading snack, confection and quick-meal maker. Kraft's candy business consists of Toblerone chocolate and several brands popular overseas.
Cadbury is known for its chocolate and has 35% of the global market for chewing gum. It also has established ties in Mexico, India and other emerging markets and distributes to convenience stores and gas stations worldwide.
"This is a transformative deal in terms of what they are pursuing," Edward Jones analyst Matt Arnold told AP.
For each share of Cadbury, stockholders are to receive 500 pence cash and 0.1874 new Kraft shares. The bid values Cadbury 50% higher than its market value before Kraft first said it wanted to buy the company in September.
The increase won over Cadbury board members, who had dismissed the initial offer as "derisory," criticized Kraft's business model and made jabs at Kraft's management.
"Although we always considered that 850 pence could be enough to win shareholder support, we have to admit surprise at how meekly Cadbury has apparently acquiesced," Jeremy Batstone-Carr, analyst at Charles Stanley & Co., told the news agency.
The board's sudden turn may simply reflect it recognized its responsibility to shareholders, other analysts said.
It is similar to the 2008 deals in which Mars bought Wrigley and InBev bought Anheuser-Busch, where the companies were not motivated sellers in any degree but at some point they felt a duty to shareholders in accepting the offer, Arnold said.
Kraft's new offer makes a competing bid less likely, analysts said. And Cadbury faces a $192.8 million (117.7 million pound) breakup fee if it backs another offer.
Kraft boosted the cash portion of its bid after key investors Warren Buffett at Berkshire Hathaway, Kraft's largest shareholder, and William Ackman at Pershing Square urged Kraft to limit the number of new shares it would issue. Kraft gained the needed cash in part by selling its North American pizza business to Nestle for $3.7 billion.
D.A. Davidson analyst Tim Ramey called the price tag a "stunner" and said he is not optimistic about Kraft's ability to handle the debt or effectively merge the two company cultures. "It would be a huge task for the best of managements," he told AP.
Kraft expects the deal to boost its earnings 5 cents per share in 2011, its first full year as a combined company. And it expects to maintain the investment-grade rating on its debt.
Kraft said 25% of its revenue would come from developing markets once it integrates Cadbury, up from 20% now.
It is unclear how the two companies' management and cultures will combine, AP said. Rosenfeld sees talent within both but would not comment on specific positions. She said Kraft would use a "best of both" approach to the deal. Kraft is expected to maintain jobs at one UK plant Cadbury had planned to close, said the report.
Click herefor details on Kraft's final offer for Cadbury.
Andclick here for details from Cadbury.
(Click here for previous CSP Daily News coverage.)
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