By Matt Scuffham
LONDON (Reuters) - Kraft Foods
In a rebuttal of Monday's aggressive defense statement from Cadbury, the maker of Ritz crackers and Philadelphia cheese said a combination of the companies would deliver "substantially more value than Cadbury could achieve on its own."
Kraft's offer is worth 729 pence per share but many analysts believe it will need to pay 820 to 850 pence in order to be successful.
"Kraft will continue to maintain a disciplined approach with respect to the acquisition of Cadbury in line with the criteria outlined in our offer documentation," said Kraft Foods Chairman and CEO Irene Rosenfeld in a statement on Tuesday.
Shares in Cadbury were down 0.75 percent to 789 pence at 1034 GMT (5:34 a.m. EST), well above the level of Kraft's approach, suggesting the market believes a bidding war could escalate.
"We think Kraft will need to raise its offer toward 820 pence even if there is no counter bid," said Evolution Securities analyst Warren Ackerman.
"The emergence of credible counter bidders for Cadbury could mean that Kraft has to materially increase its bid to be successful. We think an 850 pence bid with a 400 pence cash element could satisfy the criteria Kraft has laid out for remaining a disciplined buyer," he added.
On Monday, Cadbury teased shareholders with the prospect of rival bids and promised bigger dividends and stronger growth as it again knocked back Kraft's hostile 10 billion pound ($16.3 billion) offer.
America's Hershey
Responding to Cadbury's defense document, Kraft urged shareholders to question whether Cadbury can hit its new revenue growth targets, if it can deliver its margin targets without further spending on restructuring, whether its margin goals are achievable and what its underlying cash flow is.
"We have heard nothing from Cadbury that surprises us. Cadbury's defense document only reinforces our belief that there is a compelling strategic and financial rationale to combining these two companies and that doing so would be in the best interest of both companies' shareholders," said Rosenfeld.
Cadbury responded by saying Kraft "seem to have run out of ideas."
"Neither our shareholders nor the market as a whole seem to have had any problems understanding the detail in our business plan or the defense we presented yesterday. No smoke or mirrors will change the fact that Kraft's offer remains derisory," a spokesman for Cadbury said.
Panmure Gordon analyst Graham Jones described Kraft's response as the "usual bluster."
"Kraft is making it too easy to dismiss its comments. Its suggestion that its offer is at a substantial premium is in our view complete nonsense," he said.
Jones said Cadbury should meet its revenue growth targets "probably in much the same way as it has done consistently for the five years" and dismissed claims Cadbury would have to spend more on restructuring as "hollow."
He said Kraft made a valid point, however, about lack of margin guidance by Cadbury for 2010, particularly in light of substantial input cost inflation.
"We do admit that was something that was lacking from Cadbury's communication and assume that this is addressed by January 12 (the last time Cadbury can publish new information under Takeover Panel rules)," Jones said.
He added that the market understood the reasons for Cadbury's lack of free cash flow in recent years, given its exceptional spend on restructuring.
Kraft said it believes its current trading and prospects are strong but noted that its share price performance had been adversely affected since it made its offer approach for Dairy Milk chocolate maker Cadbury on September 7.
It said it expects these factors to dissipate once there is clarity over the outcome of its approach.
(Editing by Victoria Bryan and Hans Peters)
($1=.6140 Pound)
