Cadbury rejection of Kraft £10.2bn offer unwise, warns CEO

CHIEF EXECUTIVE of Kraft Irene Rosenfeld yesterday warned that Cadbury, the UK confectionery group, would struggle to remain independent if it continued to spurn Kraft’s £10.2 billion cash and share takeover move made public on Monday.

“Given the complexion of the market and the global landscape, we believe it would be difficult for them to go it alone,” Ms Rosenfeld told Wall Street and City of London analysts on a conference call. “We believe scale will be an increasing source of competitive advantage both in confectionary and in the food industry at large,” she said, as she set out Kraft’s arguments that the proposed deal represented “a significant premium for Cadbury’s shareholders, and well above what they themselves are expected to deliver”.

In a move that underlined growing expectations of a wave of consolidation in the confectionary sector, it emerged yesterday that Hershey, the largest US chocolate-maker, has asked JPMorgan to assess its options following Kraft’s proposed bid.

The move highlights the threat posed to Hershey by a possible combination of Kraft and Cadbury, following last year’s $23 billion acquisition of Wrigley, the gum maker, by Mars.

Analysts have speculated that Hershey, unsuccessfully courted by Cadbury in 2007 and by Wrigley in 2002, might participate in a joint counter offer for Cadbury with Nestlé, the world’s largest food company. Hershey currently produces Cadbury products in the US under licence.

Hershey declined to comment yesterday. Kraft shares opened almost 6 per cent lower at $26.45. Cadbury shares gained a further 6½p to 789½p, having jumped 38 per cent on Monday.

Ms Rosenfeld stressed the benefits of combining their existing geographical markets, with Cadbury bringing Kraft in particular “a meaningful entry into India”. The companies would have a combined market value of $1.6 billion in Brazil, $1 billion in Russia, $450 million in China and $850 million in Mexico.

She emphasised the advantages for Kraft of Cadbury’s strong presence in “instant consumption” channels, such as convenience stores, while Cadbury would benefit from Kraft’s position in the US in large-format grocers. – Copyright The Financial Times Limited 2009