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Kraft’s bid is ‘contemptuous’, says analyst

By Caroline Scott-Thomas , 10-Nov-2009

Even if Kraft intends to increase its bid for Cadbury, its latest offer has probably managed to upset both the board and shareholders, says Andrew Wood, senior research analyst at Sanford C. Bernstein.

Cadbury swiftly rejected a new £9.8bn ($16.3bn) bid from Kraft yesterday, calling the offer ‘derisory’. Nominally, the offer of 300 pence and 0.2589 new Kraft shares for each Cadbury share is the same as that put forward in Kraft’s initial bid in September, but the lower value of its shares and lower dollar value means it is now worth less. Yesterday, the deal’s value stood at 717 pence per share, as opposed to 745 pence two months ago.

Wood said he agreed with the Cadbury board’s assessment of the Kraft offer, and added that he saw the bid as “somewhat contemptuous”.

“The offer hugely undervalues Cadbury on all key metrics,” he said. “…It is highly unlikely that Cadbury shareholders will accept the offer, and they should not. Kraft may even struggle to meet with some major shareholders on the basis of this offer. We continue to see £9 as a fair price to get the deal done.”

Cadbury’s worth

However, Wood said he thought this ‘fair price’ would still be lower than Cadbury’s actual worth, which he put at between £9.39 and £10.56, “before adding any synergies from the deal, which could add another £2-3 to the value”.

Although Wood said that he does think an agreement will be reached, he said that if it does not happen he is sure that Kraft would eventually return with another offer.

As the deal stands, he said it is “highly unlikely that Cadbury shareholders will (or even should) accept the offer.”

If Kraft had failed to come up with an offer before Monday’s deadline, the company would have had to walk away for at least six months under the UK Takeover Panel’s so-called ‘put-up-or-shut-up’ rule.

By launching the bid on Monday, Kraft opens up a 28-day window to publish a prospectus detailing the offer for shareholders. It could then have up to 60 days in order to collect enough shares to complete the deal.

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