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Kraft questions Cadbury's raised profit forecasts
Bloomberg News

Kraft Foods Inc. questioned the robust growth targets of Cadbury PLC as it stuck by its $16.3 billion hostile takeover for the British chocolate company on Tuesday.


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Published: 12/15/2009 9:37 AM | Updated: 12/15/2009 3:44 PM

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Kraft Foods Inc., which has made a hostile $17 billion offer for Cadbury Plc, questioned how the candy maker can meet raised targets and said it will keep a "disciplined approach" to the bid.

"Cadbury's defense document only reinforces our belief that there is a compelling strategic and financial rationale to combining these two companies," Kraft Chief Executive Officer Irene Rosenfeld said in a statement today. Nothing in Cadbury's defense "surprises us," she said.

Kraft, which would become the world's largest confectioner if its bid succeeds, asked Cadbury shareholders to consider how the company will meet a profitability goal without more spending on restructuring and how sales can accelerate amid low food price inflation. Cadbury said yesterday it had been contacted by several entities about possible business combinations and that Kraft's bid was "contemptuous" of the company's value.

"Kraft is making it too easy to dismiss its comments," Graham Jones, an analyst at Panmure Gordon Ltd., said in a note to clients. The questions posed by the bidder "do nothing to change the fact that Kraft has yet to table a sensible offer."

Kraft's cash-and-stock bid values the maker of Dairy Milk chocolate at 727 pence a share. Shares of Cadbury, the world's second-largest candy maker, fell 3.5 pence to 791.5 pence in London. Kraft, based in Northfield, dropped 14 cents to $26.83 at 4:03 p.m. in New York Stock Exchange composite trading. The stock has fallen 4.5 percent since Sept. 4, the last trading day before the bid was made public.

"Kraft seem to have run out of ideas," Cadbury spokesman Trevor Datson said in an e-mailed response to Kraft's statement today. "No smoke and mirrors will change the fact that Kraft's offer remains derisory."

Cadbury said yesterday that its operating margin, the most important performance measure in a five-year turnaround plan, will widen to between 16 percent and 18 percent by the end of 2013. The planned increase in profitability will be driven by measures including reducing the number of suppliers and cutting some European management jobs, the company said.

Previously, Cadbury forecast profitability to reach a "mid-teens" percentage by the end of 2011.

Kraft has until Jan. 19 to raise its bid, and until Feb. 2 to gain acceptance from a majority of Cadbury investors. Cadbury Chief Executive Officer Todd Stitzer said yesterday he wasn't worried about a shareholder backlash if Kraft, or any other bidder, walked away from the U.K. company.

According to Cadbury Chairman Roger Carr, an offer in the "mid 800s going into the 900s" is seen as "reasonable" by many analysts and investors. Speaking yesterday, Carr declined to say what Cadbury's board considers to be a fair price.

Candy makers Hershey Co. and Ferrero SpA have said they are reviewing options for Cadbury, though neither has made an offer. Hershey and the charitable trust that controls it are close to deciding on whether to make a solo bid, the Wall Street Journal said last week, citing several people familiar with the matter.

Hershey, based in the Pennsylvania town of the same name, has been in contact with Nestle SA about Cadbury, two people familiar with the talks said earlier this month.

Kraft said today that the waiting period under the Hart- Scott-Rodino law has now expired, meaning that the U.S. competition condition to the offer has been satisfied.