Kraft Foods: makes 10,2 billion GBP bid for Cadbury

Northfield / IL. (kf) Kraft Foods Inc. on 07 September announced that it has made a proposal to the Board of Cadbury PLC to combine the two companies. The Board of Cadbury has rejected this proposal. Kraft Foods is committed to working toward a recommended transaction and to maintaining a constructive dialogue and is announcing this proposal as a means to encourage and further that process. Included in a statement from Kraft Foods are two letters to the Chairman of Cadbury which set out the strong strategic rationale for the proposed combination and the attractive premium and compelling value proposition for Cadbury’s shareholders.

Kraft Foods is proposing an offer for Cadbury of 3,00 GBP in cash and 0,2589 new Kraft Foods shares per Cadbury share. This values each Cadbury share at 7,45 GBP (based on the closing price of 28,10 USD for a Kraft Foods share on 04 September 2009 and an exchange rate of 1,6346 USD/GBP) and values the entire issued share capital of Cadbury at 10,2 billion GBP. The combination would build on Kraft Foods´ position as a global powerhouse in snacks, confectionery and quick meals with a rich portfolio of iconic brands. The Possible Offer represents a premium of:

  • 42 percent over Cadbury´s share price of 5,24 GBP on 03 July 2009, prior to recent analyst suggestions regarding potential sector consolidation;
  • 34 percent over Cadbury´s 90-day average share price of 5,55 GBP in the period up to 04 September 2009, the last business day preceding this announcement; and
  • 31 percent over Cadbury´s closing share price of 5,68 GBP on 04 September 2009, the last business day preceding this announcement.

Exchange rate on September 07, 2009 (Interbank):
10,2 billion British Pounds (GBP) = 16’704’030’132,294 US-Dollar (USD)
10,2 billion British Pounds (GBP) = 11’677’164’000,000 Euro (EUR)

10,2 billion GBP = 16,7 billion USD = 11,7 billion EUR

Kraft Foods would also offer a mix and match facility under which Cadbury shareholders could elect, subject to availability, to vary the proportions in which they would receive cash and new Kraft Foods shares. Kraft Foods reserves the right to change the terms of the Possible Offer and the consideration mix in the future. Financing would be on the basis that Kraft Foods would maintain an investment-grade credit rating. Kraft Foods believes that the strategic and financial rationale for the transaction is compelling. The transaction would create:

  • a company with approximately 50 billion USD in revenues;
  • a global powerhouse in snacks, confectionery and quick meals, with an exceptional portfolio of leading brands around the world;
  • a geographically diversified combined business, with leading positions and significant scale in key developing markets including India, Mexico, Brazil, China and Russia;
  • a strong presence in instant consumption channels in both developed and developing markets, expanding the reach and margin potential of the combined business;
  • and the potential for meaningful revenue synergies over time from investments in distribution, marketing and product development. In addition, there is a significant opportunity to realise pre-tax cost savings of at least 625 million USD annually. This is expected to be achieved through increased operational efficiencies over and above the current performance improvement programmes at Kraft Foods and Cadbury (including Cadbury´s Vision Into Action (VIA) programme). Kraft Foods expects that it will achieve the run-rate on these cost savings by the end of the third year following completion. Total one-off implementation cash costs of approximately 1,2 billion USD would be incurred in the first three years following completion.

Kraft Foods has a proven track record of successfully completing and integrating strategic combinations to build iconic brands and multi-national businesses, including the acquisitions of LU in 2007 and Nabisco in 2000.

In addition, Kraft Foods expects that the combination would enhance its growth and margin profile, and be accretive to earnings in the second year following completion on a cash basis (which excludes the one-time expenses related to the transaction and the impact of non-cash items such as the amortisation of intangibles after acquisition). Should the combination with Cadbury be completed, Kraft Foods would expect to revise its long-term growth targets to more than five percent for revenue and nine to eleven percent for earnings per share, from its previously announced more than four percent and seven to nine percent respectively.

Commenting on the proposed transaction, Irene B. Rosenfeld, Chairman and CEO of Kraft Foods, said: «This proposed combination is about growth. We are eager to build upon Cadbury´s iconic brands and strong British heritage through increased investment and innovation. We have great respect and admiration for Cadbury, its employees, its leadership and its proud heritage. As we have done, Cadbury has built wonderful brands by focusing on quality, innovation and marketing, but we believe the next stage in Cadbury´s development will be challenging, given the increased importance of scale in the industry. Cadbury´s brands, which are highly complementary to our portfolio, would benefit from Kraft Foods´ global scope and scale and array of proprietary technologies and processes.

Our extensive combined global business network would create opportunities for talented Cadbury employees and managers across all areas of the combined enterprise. We would augment Kraft Foods´ and Cadbury´s world-class capabilities by employing a ‘best of both’ focus, from sales and marketing to distribution and manufacturing. Our current plans contemplate that the UK would be a net beneficiary in terms of jobs. For example, we believe we would be in a position to continue to operate the Somerdale facility, which is currently planned to be closed, and to invest in Bournville, thereby preserving UK manufacturing jobs.

We have taken note of Cadbury´s recent performance and the ongoing implementation of its VIA programme. We believe that Cadbury´s share price already reflects its prospects as a standalone entity and the benefits of VIA. Our proposal therefore not only takes into account these factors, but also provides a compelling premium and, we believe, significantly more value for Cadbury shareholders than Cadbury could create independently. We hope to engage with the Board of Cadbury on a constructive basis with the goal of consummating a recommended transaction».

Info: Kraft Foods Inc. proposes combination with Cadbury PLC, building on a global powerhouse in snacks, confectionary and quick meals (PDF, 23 pages, 151 KB).

About: Cadbury PLC is a British confectionery and beverage company with its headquarters in London, United Kingdom, and is the world´s largest confectionery manufacturer. The firm was formerly known as «Cadbury Schweppes PLC» before demerging in May 2008, separating its global confectionery business from its US beverage unit, which has been renamed Dr Pepper Snapple Group Inc.. The company is headquartered in Mayfair, City of Westminster, Greater London.

About: Kraft Foods Inc. is the world´s second largest food company with annual revenues of 42 billion USD. For many years, Kraft Foods has been growing and developing well-known brands. Headquartered in Northfield, Illinois (USA), Kraft Foods employs approximately 100’000 people worldwide.

Endorsement: Cadbury statement in response to Kraft Food´s announcement

Mayfair / UK. (09.08. / cp) In response to the announcement by Kraft Foods Inc., Cadbury PLC confirms that it recently received an unsolicited proposal from Kraft Foods regarding a possible share and cash offer for the Group which is conditional on, inter alia, financing and due diligence. According to its statement the Board of Cadbury reviewed the proposal with its advisers and rejected it. The Board is confident in Cadbury´s standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope and the continued successful delivery of its Vision into Action plan. The Board believes that the proposal fundamentally undervalues the Group and its prospects.