Cadbury Plc Chief Executive Officer Todd Stitzer detailed potential benefits from a takeover by Kraft Foods Inc and discussed valuations with investors in comments that could set the stage for talks between the British confectioner and the world's No. 2 food company.

Kraft's 10 billion pound ($16.44 billion) approach -- which Cadbury has rejected as too low -- makes some strategic sense, Stitzer said, according to a note from Bank of America/Merrill Lynch on Wednesday.

Stitzer and Kraft Chief Executive Irene Rosenfeld spoke separately to investors at a closed Merrill conference in London the previous day.

Todd admitted that there is some strategic sense in combining the two companies and he doesn't expect Kraft to walk away, so he said his job is to get as much value as possible, said the note by sales specialist Simon Archer.

Past deals in the industry have been agreed at higher multiples than Kraft's offer, Stitzer said, referring to a multiple of 15 times earnings before interest, taxes, depreciation and amortization (EBITDA), the note said.

Stitzer also outlined potential areas of revenue synergies with Kraft in markets like Germany, China and Brazil, according to the note.

A Cadbury spokesman stressed on Wednesday that Stitzer's comments were theoretical and did not signal a shift in the company's position on the Kraft proposal.

Cadbury's position to the proposed offer has not changed since Chairman Roger Carr's letter to Irene Rosenfeld, said spokesman Trevor Datson. Carr said in the letter from September 12 that being absorbed into Kraft's low-growth conglomerate business model would be an unappealing prospect.


Archer's original note said: On price, Todd seemed to admit that a 15x EBITDA multiple would be a fair price.

Merrill's Archer later said the comments were only in the context of comparable transactions being in the mid-teens -- he was not implying a fair value for the (Cadbury) business.

Neither Archer or Cadbury could confirm Stitzer's exact remarks. Kraft's offer as snubbed by Cadbury is estimated by Credit Suisse at around 12.5 times 2009 EBITDA.

Merger experts and analysts said Stitzer's comments did provide a point of reference for future talks.

When pressed for a number, he didn't come out with something absurd like 30-times EBITDA. He actually gave a number that provides a starting point for negotiations, said one lawyer specializing in mergers and acquisitions who is not authorized to speak to the media. Even if it's theoretical, it indicates a mind-set.

The multiple was also in line with what some analysts think Cadbury would be worth in a deal.

We were saying right around 16 times EBITDA, Morningstar analyst Erin Swanson said. That's a final price, whether it comes from Kraft or somebody else.

A Kraft acquisition of Cadbury would create a giant confectioner with about 15 percent of the global marketplace, rivaling industry leader Mars Inc.

Kraft has maintained that it will be disciplined in its bidding for Cadbury and that it wants to maintain its investment grade rating, which could limit how much cash it could raise in a deal.

A fair price is nothing more than what someone is willing to pay, Kraft spokeswoman Perry Yeatman said. This stock was trading at 568p the day before we made our proposal public.

The initial offer was for 745 pence per share, though many analysts say Kraft might have to raise its bid as high as 850-900 pence to win Cadbury.


The next move is likely to come from the UK Takeover Panel, which could rule this week on Cadbury's request that the panel tell Kraft to put up or shut up, setting a timetable for Kraft to make a formal bid or walk away for six months, sources close to the matter said.

Shareholders in both companies have focused on the fair value of the deal, and whether Kraft should raise its offer, which is worth 716 pence per share at current values.

I do not think this price reflects the value of the company, said Cadbury shareholder David Carr, chief investment officer of Oak Value Capital Management.

I have a lot of respect for Todd Stitzer, I think he is a great manager and has a good vision of investing in the business for the long term, said Carr, who owns about 65,000 American depository shares of Cadbury.

Cadbury shares rose 0.1 percent to 785 pence on Wednesday in London. Kraft shares dipped 0.2 percent to $26.45 in New York.

($1=.6082 Pound)

(Additional reporting by David Jones and Joel Dimmock in London, Jessica Hall in Philadelphia; Writing by Douwe Miedema and Brad Dorfman; Editing by David Cowell and Gerald E. McCormick)