M&A

6 November, 2009

Kraft in waiting game as Cadbury deadline nears

* Kraft holds formal bid until last few days

* Expected to reiterate conditions of indicative offer

* Modest sweetener expected later in process

By Victoria Howley and David Jones

LONDON, Nov 6 (Reuters) - Kraft Foods (KFT.N) is persisting in its waiting game as a deadline for its acquisition of British confectioner Cadbury (CBRY.L) nears, and many see a formal bid coming in close to its tight first offer.

The North American food group is likely to keep the same terms as its informal offer, which values Cadbury at 10.2 billion pounds ($16.9 billion), sources familiar with the matter have said, before sweetening its bid later.

"We anticipate the bid coming on Monday to kick off the formal takeover process," said one analyst, speaking under the condition of anonymity.

Cadbury early in September rejected the cash-and-share bid, worth 745 pence per share at the time, and at 723 pence at current values. At 762 pence on Friday, markets show they are not expecting a massive extra pay-out from Kraft, led by its determined chief executive, Irene Rosenfeld.

For current values based on the latest share prices, click on <EU/MERGER1>.

Under British takeover rules, Kraft needs to put in a formal bid by close of business on Monday or else walk away for six months and the fact that it is waiting until the last few days shows it believes there are no rival bidders.

Even after posting weaker than expected quarterly numbers and cutting its sales forecast, Kraft reiterated this week it would not overpay for the British group best known for its Dairy Milk chocolate [ID:nN03421549].

Investors had hoped that stronger quarterly results would bolster the proposal, but shares in the maker of Velveeta cheese and Oreo cookies declined on the news.

SMALL BUMP

Still, views on what Kraft will ultimately pay for Cadbury have drifted down as hopes of a rival bidder have diminished and the value of the bid is not too far removed from some estimates of a stand-alone value for the British group.

"We expect they will raise around 800 pence either from the Kraft offer being formalised or from the standalone value if the approach is unsuccessful," said analyst Alex Smith at Nomura, who sees a standalone fair value at 777 pence.

The most bullish estimates put forward early in the bidding saga suggested Kraft would pay around 9 pounds a share, while some of the latest views put a maximum bid price at 8 pounds.

Martin Deboo at Investec Securities believes Kraft will only be willing to pay 800 pence. Rosenfeld cautioned this week that she will not overpay for Cadbury and Deboo said the probability of a successful Kraft bid has fallen.

There is now a 40 percent chance of staying independent as against 20 percent earlier, he said.

Pablo Zuanic at JP Morgan doubts Kraft will go above 780p, but both expect Kraft to push up the cash component of its offer to 50 percent or above, from the original 40 percent cash and 60 percent in new Kraft shares weighting, to win Cadbury.

This appeared to match Cadbury Chairman Roger Carr's description of Kraft as a "low-growth conglomerate business model", in his September letter to Rosenfeld, when he reiterated why Cadbury was rejecting Kraft's approach. ($1=.6053 Pound) (Editing by Simon Jessop)

Source: http://www.reuters.com