Cadbury rejected Kraft's cash-and-shares bid for the U.K. confectioner, which the newspaper said sets the stage for a drawn-out battle. Even though Cadbury rejected its bid, Kraft has said it will work toward a recommended transaction.
On the Tuesday conference call, Kraft said it does not expect to have trouble financing the transaction and that it will do so with internal cash and additional debt, the report said.
In a Monday interview with the Journal, Rosenfeld said she will work toward "constructive conversation" with Cadbury, but that Kraft will remain a disciplined buyer. Rosenfeld said her company has made a "full and fair" proposal.
Kraft, which owns brands including Oreos and Velveeta cheese, could face competition for the U.K. company. The Hershey Co., the Pennsylvania chocolate maker, "is likely to make some response," a person familiar with the matter told the newspaper. Hershey and Cadbury have discussed combinations before. Hershey distributes Cadbury products in the United States under a longtime agreement, the report said.
Prior to Kraft going public with its offer on Monday, Cadbury had already rebuffed the advance in private, said the report. In publicly rejecting it, Cadbury said the offer, a 31% premium to its closing share price on Friday, "fundamentally undervalues" the company. (Click the Download Now button below for Cadbury's statement.)
The rejection immediately puts pressure on Kraft to increase its bid. People close to Cadburywhose chief executive, Todd Stitzer, is in the midst of a four-year growth plantold the paper that the company views the bid as an opportunistic effort to take advantage of its depressed valuation. The approach left Cadbury to decide whether to dig in and protect its independence, seek a higher offer from Kraft or find a friendly bidder, it added.
A deal between Northfield, Ill.-based Kraft and London-based Cadbury would create a global food giant with $50 billion in annual revenues, and would boost Kraft's growth prospects by giving it access to new brands, especially in the chewing-gum segment. Cadbury owns the Trident gum brand. Confectionery products typically have higher profit margins than Kraft's companywide operating margin in 2008, which was about 9%.
The deal would add new distribution channels for Kraft's existing products, said the report. The majority of Cadbury's sales are outside the United States, and more than one-third are in fast-growing emerging markets.
Nestle SA of Vevy, Switzerland, is another possible alternative to Kraft for Cadbury, the Journal said. On Monday, Nestle CEO Paul Bulcke said the company is always "open to acquisition opportunities if they fit strategically," but that its appetite is limited for now.
Hershey Co. is unlikely to stand by and let Kraft Foods Inc. or another company swallow up chocolate rival Cadbury, a person familiar with Hershey's thinking told the paper. "Hershey recognizes that Cadbury is the last major confectionery company potentially available and, as such, is likely to make some response" to Kraft's $16.73 billion bid for Cadbury PLC, the person said.
Hershey, with a market cap of about $8.8 billion, could have a difficult time financing such a deal. Cadbury's market cap, after shooting up Monday, is roughly $17.5 billion, said the report.
One potential option would be for Hershey to team with Nestle SA, the Swiss food giant, to make a joint bid in which Nestle would take Cadbury's gum business and Hershey would take chocolate. It is unknown whether Nestle and Hershey have been in talks.
If Hershey makes some kind of move for Cadbury, it would not be the first time the Pennsylvania chocolate maker has tried to pair up with its British rival.
Consummating its long-time flirtation with Cadbury would give Hershey broader international scale, said the report But it seems the only way that will happen is if Hershey finds a way to buy Cadbury, because the Hershey Trust has repeatedly refused to cede control of the company in a sale.
Rosenfeld has had Cadbury in her sights for at least a year, a person familiar with her thinking told the paper. But a bid was delayed by market and economic turmoil. Rosenfeld contacted Cadbury Chairman Roger Carr, saying she was in the country and would like a meeting, a person familiar with the matter said. The two met at Carr's office in London on August 28, where Rosenfeld quickly sprang her offer, people familiar with the matter told the paper. Though Carr was cool to it, Rosenfeld followed up the same day with a letter detailing the bid. Cadbury's board, after analyzing and discussing the offer, formally rejected it in a terse letter a few days later, one of the people said.
One potential problem, according to the Journal: The offer contains a relatively high stock component of 60%, a hurdle for Cadbury's U.K. shareholders who have restrictions on the U.S. stock they can hold.
Cadbury is the world's second-largest candy and chocolate company by sales behind Mars, said the report. For the past two years, the company has worked to improve its profitability by cutting costs, raising prices and simplifying its management structure. The company, whose brands include Cadbury, Green & Blacks and Trident, has been able to focus exclusively on its sweets business for the past year. Formerly Cadbury Schweppes, it spun off its U.S. soft-drinks division last year under pressure from shareholder Nelson Peltz. The separation, coupled with its improving performance, has made Cadbury an attractive takeover target, analysts said.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.