Cadbury to launch its defence after Kraft approach

Cadbury will today spell out its argument to remain independent with a defence document set to highlight its upbeat trading.

The Birmingham-based giant will set out to show that its valuation is way above that of Kraft Food’s bid, according to analysts.

The American group’s hostile cash and shares offer is currently worth 725 pence, or £10 billion, against Cadbury’s share price of 787p on Friday, and most analysts believe Kraft will need to pay 820p to 850p to be successful.

Cadbury’s chief executive Todd Stitzer will argue his group is worth a lot more than Kraft’s bid in a formal defence presentation, and look to focus on its upbeat prospects as a standalone high-growth-focused confectionery group.

“Until Kraft is willing to pay over 800p we cannot see how Cadbury’s directors could even countenance opening discussions, and until 850p is offered cannot consider recommending a bid,” said analyst Charlie Mills at brokers Credit Suisse.

Meanwhile, Prime Minister Gordon Brown gave a veiled warning to any foreign buyer who attempts to asset strip Cadbury and move jobs out of Birmingham, but added that his government would not oppose a takeover bid in principle.

“I think it is very important that we don’t have a hostile bid for Cadbury which is an asset-stripping bid,” he added.

Cadbury will use its ethical credentials, play up the heritage of its chocolate and Fairtrade links to persuade shareholders to throw out the bid, analysts said.

Nomura analyst Alex Smith expects more details on Cadbury’s margin target for 2011 and its plans beyond, and say it is likely to be in a strong position to argue for further savings with current support from its workers against a Kraft bid.

Meanwhile, Cadbury workers will take to Parliament this week after a “Keep Cadbury Independent” is launched on December 15.

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, and some analysts ponder how Kraft will push through a hostile bid with a big paper component with limited room to raise its bid due to its current debt position.