Cadbury Finds Kraft Bid Insufficiently Sweet

Kraft Foods offers $16.7 billion for Cadbury, but the British candy maker rejects the deal, saying it undervalues its prospects.
Publish date:

Updated from 12:14 a.m.


Kraft Foods


offered 10.2 billion pounds ($16.7 billion) to buy



, but the British candy maker rejected the bid.

In a statement, Cadbury's board said Kraft's offer "fundamentally undervalues" Cadbury and its prospects. The board added Monday that it's confident in the company's standalone strategy.

Kraft seems intent on a transaction, however. Following Cadbury's rejection of the offer, the Northfield, Ill.-based food company said it is "committed" to working toward a deal that Cadbury can accept.

Kraft said the proposed deal would create a "global powerhouse" in snacks, confectionary and quick meals, with a geographically diversified business and leading positions in developing markets such as India, Mexico, Brazil, China and Russia.

Cadbury shares surged more than 42% to 808 pence ($13.20) in London before closing at 783 pence ($12.79), up nearly 38% from Friday's close of 568 pence ($9.30). The 800-pence level is consistent with what British analysts said Kraft would eventually have to pay to seal a deal, the



The candy maker's U.S. shares didn't trade Monday because U.S. stock markets were closed in observance of Labor Day. The U.S. shares will play catch-up when U.S. markets reopen Tuesday. Gains similar to the ones in London would boost Cadbury's U.S. shares to more than $51 from their Friday close of $37.46.

Kraft said it offered 300 pence ($4.91) in cash plus 0.2589 new Kraft Food shares for each Cadbury share. That values Cadbury shares at 745 pence ($12.20), a 31% premium over Cadbury's London closing price on Friday.

Kraft's offer is one more indication that dealmaking is heating up after a long cold spell in the wake of last year's financial crisis. Last week,


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acquired Marvel Comics for $4 billion

, oilfield services company

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On Tuesday, it was confirmed that

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France Telecom


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With a 10.3% share of the world confectionary market in 2008, Cadbury ranked No. 2 behind Mars, which had 14.8%, the


noted. Kraft was fifth with 4.5%.

Graham Jones, an analyst at Panmure Gordon & Co., recommended that shareholders hold out for at least 800 pence ($13.10) a share, the



"A key question is whether there is a counter bid, most likely from a


-led consortium," Jones was reported saying. "However, we see the most likely scenario being Kraft being successful on improved terms."

Others see a significant threat to Kraft's bid coming from Nestle and others.

"Speculation is already mounting that


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and Nestle may come together in one form or another to counterbid, with Nestle potentially interested in Cadbury's gum business and Hershey in the chocolate-confectionery brands, with other interested parties," said Darren Shirley, analyst at Shore Capital, who was quoted by the




Wall Street Journal

, citing one person familiar with the matter, said Monday that Hershey "is likely to make some response."

-- Written by a staff member of