Kraft Foods launches hostile bid for Cadbury

Cadbury has rejected a £9.8 billion ($US16.3 billion) hostile bid from Kraft Foods, setting up what could be a lengthy tussle for control of the UK chocolate company.

By turning hostile with its offer, first signalled in September, Kraft is going directly to Cadbury shareholders, who are being asked to accept merger terms that have been consistently opposed by the directors.

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.

Kraft is offering Cadbury shareholders 300p in cash and 0.2589 new Kraft share for each Cadbury share, sticking with the original bid conditions. Kraft says its offer, based on the closing share price of $US26.78 per Kraft Foods share price on November 6, values each Cadbury share at 717p.

A deal would push Kraft, the fourth-largest sweets and chocolate maker by market share, past Mars as the world’s largest confectioner.

In New Zealand, it would combine Cadbury Dairy Milk chocolate and Trident chewing gum brands with Vegemite, Kraft peanut butter and Philadelphia cream cheese. Kraft also owns some of Europe’s biggest chocolate brands.

Cadbury’s international chocolate and gum businesses would give Kraft greater ability to break into developing markets including India. It would be the biggest cross-border acquisition this year.

In a statement, Cadbury chairman Roger Carr said the board "emphatically rejected this derisory offer and has strengthened its resolve to ensure the true value of Cadbury is fully understood by all." Kraft's offer "does not come remotely close to reflecting the true value of our company," he added.

According to UK takeover rules, 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.

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 standalone 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.