Cadbury steps up defense, Q3 seen brought forward

By @ibtimes on

British bid target Cadbury is set to beef up its defense against Kraft this week as CEO Todd Stitzer addresses investors and it ponders an early third-quarter update, analysts and fund managers said.

Stitzer speaks at a long-arranged Stanford Bernstein conference on Wednesday where he is certain to be asked about the Kraft bid, initially valued at 10.2 billion pounds ($16.9 billion), and questioned about Cadbury's defense strategy.

Analysts expect Stitzer to stress Cadbury's strong record eighteen months into its four-year Vision into Action plan to cut costs and improve performance and highlight that this strategy is working after its upbeat half-year results in July.

They see the world's second largest confectionery group bringing forward its traditional third-quarter trading update, provisionally set for October 21, although Cadbury had no comment on any possible early release.

We would expect Cadbury to bring forward its update to stress its current strong trading performance and is on track to meet its financial targets, said one analyst on Monday.

Cadbury's Chairman Roger Carr raised the heat in the bid battle over the weekend in a letter to Kraft's Chairman and CEO Irene Rosenfeld by saying it was an unappealing prospect being absorbed into Kraft's low growth conglomerate business model.

While a formal defense document will probably only be required if a formal bid is made, Cadbury will waste no time in outlining its strategy to shareholders as a standalone company.

We do expect Cadbury to aggressively explain to investors the strength and inherent value in its business...It also seems clear that Cadbury will soon have to start explaining its longer-term vision for Cadbury, beyond 2011, said analyst Andrew Wood at Stanford Bernstein.

Back in July, Cadbury produced upbeat half-year results saying its sales were up 4 percent after a slow first-quarter and raising its forecast margin rise for 2009 as sweet eaters, especially chocolate lovers, opted for treats in a downturn.

Analysts say it will find it tough to better this in the second half as it fights a tough comparison with a strong corresponding period in 2008.

Cadbury's 2008-2011 Vision into Action plan targets annual sales growth of 4 to 6 percent, mid-teen percentage operating margins by 2011, strong dividend growth and better returns on capital. This would be achieved by innovative new products and by cutting 15 percent of its 50,000 global workforce.

The company had a 11.9 percent operating margin in 2008.

BID SHRINKS, INVESTORS WANT CASH

U.S. food giant Kraft launched its cash and shares bid for Cadbury last Monday in an attempt to create the world's largest confectionery group, an approach Cadbury immediately rejected.

The Kraft bid is worth 300 pence in cash and 0.2589 Kraft shares for each Cadbury share, valuing the British group initially at 745p, but this has slipped to 707p, or around 9.7 billion pounds, with the weakness in Kraft's shares and the dollar.

Many investors still believe the bid undervalues Cadbury, such as its 16th biggest investor, Standard Life, while others dislike the large 60 percent equity element.

Cadbury is obviously trying to talk up its options and we'll have to wait and see if Kraft comes back with a higher bid - I think the market is expecting that and I expect them to come back at a higher price eventually, David Cumming, head of UK equities at Standard Life Investment told BBC Radio 4.

One top 25 investor from Britain added, We don't want to be owners of Kraft stock. If we wanted to own Kraft stock, we would have bought it by now and we obviously have not.

If Kraft does want it, more cash would be good. Not just a higher cash component but a higher valuation. We are looking at something in the ballpark of 850 -- that might work.

Cadbury shares were up 0.6 percent at 780p by 1400 GMT after hitting 808p on the day of the bid last Monday and closing at 568p the previous Friday.

(Reporting by David Jones; editing by Sitaraman Shankar)

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