Kraft Foods Inc. (Kraft) today decided to directly approach the shareholders of Cadbury in a USD 16.3 billion hostile takeover bid. The two firms have been in negotiations since September when the Kraft made the initial offer to the Cadbury management. After the negotiations were not fruitful the Kraft management today decided to roll the ball in shareholder’s court.
The offer values a Cadbury share at GBP (£) 7.17 each which is a 26 percent premium to the price before Kraft made its original proposal. The offer is against the earlier expectations of the market analysts who had hoped that the current offer would be higher than the earlier bid.
Cadbury shares saw a 1.72 percent dip on the London Stock Exchange after the announcement was made but still managed to close above the bid price at £7.63 apiece. Kraft meanwhile seemed confident that the offer was fairly priced as the price was 13.9 times the value of Cadbury’s Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA).
The Cadbury’s management meanwhile seemed confident in their analysis of the situation when they claimed that the current offer is lower than September offer since Kraft’s share prices had dropped by 4percent since September.
“The repetition of a proposal which is now of less value and lower than the current Cadbury share price does not make it any more attractive,” Roger Carr, the company’s chairman, said in a statement. “As a result, the board has emphatically rejected this derisory offer and has strengthened its resolve to ensure the true value of Cadbury is fully understood by all.”
Analysts believe that the merger is a good and rational choice for the American manufacturer which will gain inroads in high growth markets like India, South Africa and Mexico with Cadbury brands like trident gums and Dairy Milk chocolate. Meanwhile they also noted that Kraft will have to raise the offer to at least £8 per share.
While the two firms still debate the issue the ball is now in shareholder’s court.
Irene Rosenfeld, the Kraft boss, took the battle to shareholders saying: ‘We remain convinced of the strategic merits for both companies of combining Kraft and Cadbury.’
In a direct challenge to Cadbury executives she said her proposal offers the ‘best immediate and long-term value‘ for Cadbury shareholders.
If the bid is successful, it will be one of the biggest mergers of the year. As of now both the firms are readying forces for a battle that may stretch for months, with an army of investment bankers and lawyers.