Kraft Foods upped the ante and raised its bid to 11.9 billion pounds ($19.6 billion), and Cadbury shareholders and management accepted the offer. The company will become the world's top confectioner, with Cadbury's Dairy Milk chocolate and Trident gum and Kraft's Milka, Toblerone and Terry's chocolate brands.
The new bid consists of 500p of cash and 0.1874 new Kraft shares, compared to Kraft's original offer of 300p cash and 0.2589 new Kraft shares, which valued the shares in September when the deal was first proposed at 745p. Kraft will issue 265 million new shares compared to 370 in its original offer. Kraft's new cash-and-share deal values each Cadbury share at 840 pence, with shareholders getting a 10p special dividend, bringing it to a total of 850p.
During a press conference this morning with analysts, Kraft Chairman & CEO Irene Rosenfeld said the Cadbury's Board unanimously accepted the offer of more cash and fewer Kraft shares. That strategy won over both Cadbury Chairman Roger Carr and satisfied Warren Buffett, Kraft's largest shareholder at almost 10 percent.
Combined revenues of close to $60 billion in 2008 mean Kraft remains the world's second biggest food group behind Nestle, the group will have 40 confectionery brands that each have annual sales in excess of $100 million, and Rosenfeld said the deal increased scale for both companies in developing markets such as Brazil, Russia and China, where Kraft has a stronger presence, and India, Mexico and South Africa, where Cadbury holds leading positions.
Kraft has given assurances that existing contractual employment rights, including pension rights, of all Cadbury employees will be fully safeguarded, and Rosenfeld said the company would invest in improvements in Cadbury's plants in the UK.
Kraft CFO Timothy McLevish said the deal would be accretive to earnings in 2011 by around 5 cents on a cash basis and give a mid-teens percentage return on investment, well in excess of Kraft's cost of capital.