LONDON - Cadbury Plc will argue for its independence on Monday with a defence document set to highlight its upbeat trading and show that its valuation is way above that of Kraft Food's bid, analysts said on Friday.
The American group's hostile cash and shares offer is currently worth 725 pence, or 10 billion pounds ($16.3 billion), against Cadbury's share price of 787p by 1415 GMT, and most analysts believe Kraft will need to pay 820p to 850p to win.
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.
British Prime Minister Gordon Brown gave a veiled warning to any foreign buyer who attempts to asset strip Cadbury and move jobs out of its home city 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, Brown told local radio station Radio WM.
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. Stitzer has said Cadbury has cultural similarities with Hershey Co.
U.S.-based Hershey and Italy's Ferrero have said they are contemplating bidding for Cadbury, while Nestle is said by analysts to be watching events closely.
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.
British and Irish workers at Cadbury will launch a Keep Cadbury Independent campaign on Dec. 15 at the group's main Bournville chocolate factory in Birmingham to fend off Kraft's bid and so avoid job losses and pay outs.
They will focus on brand value, growth and restructuring opportunities, said one banker talking about Cadbury's defence.
Kraft has declined to raise its bid from the terms first announced on Sept. 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.
We would question how Kraft would justify suddenly raising its offer by the 130 pence we think is needed to get an agreement ... True, this is a one horse race, but Kraft could still lose, said Mills.
Many 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.
We think an 850p bid with a 400p cash element could satisfy the criteria Kraft has laid out for remaining a disciplined buyer, said analyst Warren Ackerman at Evolution Securities.
Credit Suisse's Mills says using a Cadbury price of 720p a share and consensus 2010 earnings of 41.8p puts the offer on 17.2 times, which barely gives any premium over peers Nestle, Unilever and Danone.
The current bid values Cadbury at around 10 times 2010 EBITDA underlying profits, similar to the three big European food makers, so again offers no premium, he adds.
In October, Cadbury at its third-quarter update looked for annual 2009 underlying sales of 5 percent in the middle of its medium term 4 to 6 percent target, an operating margin boost of 135 basis points over 2008's 11.9 percent and a good mid-teens margin by 2011, assumed by analysts to be over 15 percent.
Investec analyst Martin Deboo expects Cadbury will show 5 percent sales growth for 2009 but may push up its margin to 13.4 percent, while Nomura's Smith sees 5.2 percent and 13.6 percent.
After the defence document, key dates in the takeover battle will be Jan. 12 (Day 39) which is the last time Cadbury can publish new information, Jan. 19 (Day 46), which is the last time Kraft can raise its offer, and Feb. 2 (Day 60), which is the last day for Kraft to obtain shareholder acceptance for its deal. (Additional reporting by Victoria Howley; Editing by Rupert Winchester) ($1=.6138 Pound)