Cadbury's 'aggressive' stance could keep it independent - analyst

This morning, Britain's Cadbury raised its long-term growth targets and reported upbeat trading as it dismissed a ₤9.8bn ($16.3bn) bid from Kraft Foods, calling it wholly inadequate.

And researchers at Bernstein said that the defence document and higher targets from the Board of Cadbury “make a strong argument as to why Cadbury shareholders should reject Kraft’s offer where it stands.”​

Kraft launched the hostile bid a month ago, following the rejection of its original bid by Cadbury’s Board. The US company effectively sidestepped the Board appealing directly to shareholders by making an official second bid of the same nominal value, although its value has declined due to a slide in the American company’s share prices.

Andrew Wood, senior research analyst with Bernstein, said that the market analysis firm consider that Kraft’s arguments to support its bid of 4 December for Cadbury were not compelling and he said that Cadbury’s defence document today finally gives an appropriately aggressive view on potential for the business.

"Kraft is trying to buy Cadbury on the cheap to provide much needed growth to their unattractive low-growth conglomerate business model,”​ states the circular from the Cadbury Board.

Resisting takeovers​

“The Board is committed to maximising shareholder value and believes that this is best achieved through the strong continuing performance of an independent Cadbury,”​ continued the Board’s statement.

Indeed, Wood concurs, adding that today’s upbeat trading forecast could also encourage the shareholders to be willing to allow Cadbury remain independent and “reap the benefits of this very strong operating performance (and likely stock performance) over the next four years.”​

In terms of further takeover bids, he said that Bernstein stands by its current price target of £9 (€9.96) for Cadbury: “Although we accept that Cadbury is fundamentally worth much more, we believe investors are likely to accept a bid in this range,”​ said Wood.

Attractive model​

And the analysts stress that the attractiveness of Cadbury’s standalone confectionery model is highlighted by the upgraded targets the company’s Board set out for the period 2010 up until 2013.

They said that these targets now include organic growth of 5 to 7 per cent as opposed to 4 to 6 per cent previously; an operating margin of 16 to18 per cent by 2013 compared to a previous 'mid teens by 2011' and no guidance for 2013; an operating cash conversion of 80 to 90 per cent by 2010 versus no guidance; and, finally, double-digit growth in dividends per share as from 2010 versus no guidance.

Cadbury also reiterated its FY 2009 guidance of organic growth ‘in the middle of the 4 to 6 per cent range' and operating margin growth of 'at least 135 basis points'.

And the maker of brands such as Dairy Milk and Flake said that growth has been strong across all categories with continued strong growth in chocolate and sugar and improving results from gum, helped by the launch of Trident Layers in the US.

Workers' campaign​

Last week, British and Irish workers at Cadbury announced a campaign to resist Kraft’s hostile takeover bid by appealing to shareholders and politicians to block the deal.

Cadbury workers – as well as some politicians – fear that a foreign takeover could lead to local job losses and pay cuts in the UK and Ireland.

Len McCluskey, assistant general secretary of Cadbury’s trade union Unite, said in a statement: "Cadbury is a great UK success story – and it was and is not for sale. But suddenly, a hostile bid and swarming speculators has thrown its future, its investment plans and the jobs of thousands of workers here and in Ireland up in the air.”​

The ‘Keep Cadbury Independent’ campaign will be launched with the support of local members of parliament in Cadbury’s home city of Birmingham tomorrow, the union said. It will involve a demonstration and petition, and the union then intends to take the campaign to parliament on Wednesday to air their concerns with government ministers.

Other companies said to be considering a bid include Hershey and Ferrero, although they would still need to secure financing in order to challenge Kraft’s bid.