Cadbury sees interest from third parties

Britain's Cadbury Plc said it has received interest from other bidders after raising its growth targets and reporting upbeat trading as it dismissed a 10 billion pound ($16.5 billion) bid from Kraft Foods. The Dairy Milk chocolate maker on Monday called Kraft's bid "wholly inadequate" kicking off a seven-week fight for its independence, while declining to name Hershey or Italy's Ferrero who have said they are contemplating bids for Cadbury.
"We have had indications of interest from third parties on possible business combinations," Chief Executive Todd Stitzer told a conference call after issuing its defence document. Cadbury shares rose to an early high of 797-1/2 pence but last traded up 0.13 percent at 791-1/2 pence at 1100 GMT compared to Kraft's hostile bid worth 727p. Most analysts believe Kraft will need to pay 820p to 850p to win Cadbury.
"We are not overwhelmed by Cadbury's defence... This is not enough to squeeze a massively higher offer from Kraft in our view," said analyst James Edwardes Jones at brokers Execution, who added, "It is difficult to see why Kraft needs to pay up much more than 800p."
Analysts said there were few surprises in Cadbury defence with its 2009 outlook unchanged, while saying it could hit higher margin without further jobs cuts or factory closures and its higher sales growth would rely on emerging market growth. "Whilst we have never regarded potential interest from Ferrero or Hershey as amounting to the likelihood of a competing hostile approach, some form of trading partnership could form part of a so-called 'white knight' partnership," said analyst Jeremy Batstone-Carr at brokers Charles Stanley.
Cadbury and US-based Hershey have held talks over a friendly bid by the US firm, according to the Sunday Telegraph, while Nestle is said by analysts to be watching events surrounding Cadbury closely. "Kraft is trying to buy Cadbury on the cheap to provide much needed growth to their unattractive low-growth conglomerate business model," said Cadbury Chairman Roger Carr.
"Don't let Kraft steal your company with its derisory offer." Kraft had no immediate response to Cadbury's defence. Highlighting the strength of its "standalone" strategy, Cadbury outlined a higher growth vision for an independent future as a fully focused confectionery group built around strong sales growth and a rise in profit margins.
"It is our duty to get the best value for our shareholders and is best achieved as an independent company," Stitzer said. The group raised its underlying annual sales growth target to between 5 and 7 percent from its previous 4 to 6 percent range. It sees operating margins by 2013 in a range of 16 to 18 percent after looking for good mid-teens margins by 2011, compared with 11.9 percent in 2008.
"Assuming the group were to achieve these new targets, Cadbury might be worth something like 675p per share on fundamentals. We still believe Kraft needs to offer closer to 850p to win the day," said Credit Suisse analyst Alex Molloy. It also looked to double-digit percentage rises in dividend payouts from 2010 onwards, and a higher rate of converting operating profits into cash flow also from 2010. In 2008 Cadbury's dividend increased 6 percent to 16.4 pence a share. Cadbury held its 2009 forecasts for a 5 percent rise in underlying sales growth and a 135 basis point rise in margins.
Kraft has declined to raise its bid from the terms first announced on September 7 with 300p in cash and the rest in new Kraft shares, determined not to overpay and to play the long game, convinced no rival bidder will emerge. Analysts believe with Kraft agreeing a $9.2 billion loan it can raise its cash element by 100p and still maintain its investment grade rating for its debt and be enough to get Cadbury to the negotiating table about a winning bid.