Kraft Foods Inc. must raise its hostile 11 billion-pound ($17.9 billion) bid for Cadbury Plc by at least 10 percent to stand a chance of capturing the UK maker of Dairy Milk chocolate, an investor survey shows.

Kraft, whose offer is worth about 771 pence a share, needs to raise that to at least 850 pence, the median price named by 9 Cadbury shareholders, who together account for about 11 percent of the shares. Responses ranged from 800 pence to 900 pence. A deadline to increase the bid passes on Jan. 19.
Cadbury closed at 793.5 pence on Jan. 15, 2.9 percent above the value of Kraft’s bid, reflecting the chance the offer will be raised or a rival suitor such as Hershey Co. will emerge.
Hershey is stepping up efforts to prepare a bid and plans to make a decision after Kraft’s final offer, according to people with knowledge of the matter. Kraft Chief Executive Officer Irene Rosenfeld has vowed to stay “disciplined” on price.
“There’s a lot of value in Cadbury,” said Peter Langerman, CEO of Mutual Series, which is a subsidiary of Franklin Resources Inc., which has a 7.7 percent stake in Cadbury. “When you look at the numbers that make sense for both Cadbury and Kraft, their offer is materially lower than that,” he said Jan. 15 in a telephone interview.
Franklin Resources will reject the bid if it isn’t improved, Langerman said. The UK company’s second-largest investor, Legal & General Group Plc, said it remains opposed to Kraft’s offer on valuation grounds. Rival Offer?
“Our position on Cadbury is unchanged; we continue to believe that the current Kraft bid does not reflect the long- term value offered by the company on a standalone basis,” Mark Burgess, head of equities at Legal & General, said in a statement. The insurer owned about 70 million Cadbury shares, a 5.1 percent stake, according to a Jan. 13 filing.
Rival bidders have until Jan. 23 to decide whether to make a counter-proposal. Cadbury Chief Executive Officer Todd Stitzer said this week that Hershey and Cadbury could make an “appealing” combination. Hershey has been drafting commitment letters with its lenders, JPMorgan Chase & Co. and Bank of America Corp., to secure a multi-billion-dollar loan package, according to people with knowledge of the matter.
“If Kraft walk away, it’s not the end of the world,” said Andy Brown, chief executive officer of Cedar Rock Capital Ltd. in London. “Just because they are the only corporation to have made an offer, it doesn’t mean they’re going to win or that’s what the company is worth.”
Morgan Stanley Investment Management Inc.’s Ann Thivierge said she “won’t be disappointed” if Kraft’s bid is rejected or the Toblerone maker walks away. Mario Gabelli, the chairman and chief executive officer of Gamco Investors Inc., also said his investment in Cadbury doesn’t hinge on a merger.
“We don’t mind owning Cadbury for the next five years,” said Gabelli, whose mutual-fund firm owned almost 2.8 million American depository shares in Cadbury as of June 30.
To be sure, some investors say the lack of a competitive auction means they’re prepared to sell for less than they originally anticipated.
(Source: Bloomberg)