Cadbury points to rival interest as it rejects Kraft

LONDON (Reuters) - CADBURY (CBRY.LO) teased shareholders with the prospect of rival bids and promised bigger dividends and stronger growth as it again knocked back a hostile 10 billion pound ($16.2 billion) offer from Kraft Foods .

Cadbury chairman Roger Carr said Hershey and Italy's Ferrero had both indicated they were contemplating bids, adding serious negotiations would only start if a compelling and fully-financed offer emerged.

"At the moment nothing like this has been received," he told reporters on Monday.

The Dairy Milk chocolate maker was issuing its defense document against Kraft's takeover bid, telling shareholders not to let the U.S. food group "steal" Cadbury and kicking off a seven-week fight for independence.

Meanwhile, British and Irish Cadbury confectionery workers plan to meet on Tuesday to try and fight off the hostile bid from Kraft Foods.

The assistant general secretary of Britain's largest trade union Unite Len McCluskey is set to launch the "Keep Cadbury Independent" campaign along with local members of Parliament Stephen McCabe and Lynne Jones from the ruling Labour Party at Cadbury's historic Bournville home in Birmingham.

They will argue that the Kraft takeover will result in job losses and pay cuts.

Shares in Cadbury closed up 0.57 percent at 793 pence, compared to Kraft's hostile bid worth 729 pence. Most analysts believe Kraft will need to pay 820-850 pence to win Cadbury.

Shares in Kraft were up 0.75 percent at $26.99 at 1828 GMT (1:28 p.m. EST).

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Analysts said there were few surprises in Cadbury's defense with its 2009 outlook unchanged, while saying it could hit higher margins without further jobs cuts or factory closures and its higher sales growth would rely on emerging market growth.

"This is not enough to squeeze a massively higher offer from Kraft in our view," James Edwardes Jones at brokers Execution said. "It is difficult to see why Kraft needs to pay up much more than 800 p."

A source close to Kraft added that there was nothing in the defense documents that would make the US company change its position.

For a graphic on Cadbury please click on: http://graphics.thomsonreuters.com/129/EZ_CDFN1209.gif

Kraft said it still believed its offer was in the best interest of shareholders and that a combination of the two companies would create "significant growth opportunity."

Highlighting its "standalone" strategy, Cadbury outlined a higher growth vision for an independent future as a fully focused confectionery group built around strong sales growth and a rise in profit margins.

The group raised its underlying annual sales growth target to between 5 and 7 percent from its previous 4 to 6 percent range. It sees operating margins by 2013 in a range of 16 to 18 percent after looking for good mid-teens margins by 2011, compared with 11.9 percent in 2008.

"It is not even jam tomorrow. It is jam in four years time," the source close to Kraft said.

Credit Suisse analyst Alex Molloy said: "Assuming the group were to achieve these new targets, Cadbury might be worth something like 675p per share on fundamentals. We still believe Kraft needs to offer closer to 850p to win the day."

It also looked to double-digit percentage rises in dividend payouts from 2010 onwards, and a higher rate of converting operating profits into cash flow also from 2010. In 2008 Cadbury's dividend increased 6 percent to 16.4 pence a share. Cadbury held its 2009 forecasts for a 5 percent rise in underlying sales growth and a 135 basis point rise in margins.

Kraft has declined to raise its bid from the terms first announced on September 7 with 300p in cash and the rest in new Kraft shares, determined not to overpay and to play the long game, convinced no rival bidder will emerge.

A Kraft-Cadbury deal would create the world's biggest confectionery group overtaking Mars-Wrigley bringing Cadbury's chocolate and Trident gum together with Kraft's Milka, Toblerone, Cote D'Or, Terry's and Suchard chocolate brands.

Under UK takeover rules, Cadbury shareholders have until February 2 to either accept or reject Kraft's offer.

($1=.6057 Pound)

(Editing by Paul Hoskins, Hans Peters and Sharon Lindores)

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