By Matt Scuffham
LONDON (Reuters) - Kraft Foods
In a rebuttal of Monday's aggressive defense statement from the British chocolatier, Kraft said a combination of the companies would deliver "substantially more value than Cadbury could achieve on its own".
"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 Chairman and CEO Irene Rosenfeld in a statement on Tuesday.
Kraft's offer is worth 730 pence per share but many analysts believe it will have to pay more to be successful.
"The emergence of credible counter bidders for Cadbury could mean that Kraft has to materially increase its bid to be successful," said Evolution Securities analyst Warren Ackerman.
"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.
A rival bid would be the catalyst for that to happen.
One top ten Cadbury investor told Reuters: "The only way this situation can change dramatically is if Hershey comes out and bids, but we think that's unlikely to happen.
"Otherwise, Kraft might raise (its original offer) but not as much as Cadbury shareholders want. Investors want anything over 800 pence, but it seems unlikely that Kraft's going to do that."
Kevin Dreyer, research analyst and associate portfolio manager at Gamco Asset Management, which holds just under 1 percent in Cadbury, said: "Kraft is playing poker - they are waiting to see if there's another bid to force their hand."
Shares in Cadbury were down 0.4 percent to 791.5 pence at 1450 GMT (9:50 a.m. EST), well above the level of Kraft's offer.
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 offer.
Cadbury chairman Roger Carr said 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".
"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.
Jones 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.
Elsewhere British and Irish Cadbury workers meeting in Bournville, England on Tuesday kicked off a campaign to fight the Kraft bid.
Union officials and local members of parliament will take their case to business secretary Peter Mandelson on Wednesday to argue that state-funded bank Royal Bank of Scotland should not be among banks financing Kraft's 10 billion pound bid for Cadbury.
(Additional reporting by Raji Menon; Editing by Victoria Bryan and Hans Peters)
($1=.6161 Pound)
