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Cadbury Price Falls to Near Kraft Offer


By Andrew Cleary and Duane D. Stanford

(Bloomberg) — Cadbury Plc (CBY) shares fell for a second day in London to trade at less than 1 percent above the value of Kraft Foods Inc. (KFT)'s offer, the smallest spread since the U.S. food maker's initial approach on Sept. 7.

Cadbury slid 0.9 percent, extending yesterday's 3.2 percent drop after Warren Buffett's Berkshire Hathaway Inc. went public with opposition to Kraft's plan to issue new shares to fund its bid. Hershey Co.'s board is divided on whether to make a rival offer, people with knowledge of the matter said yesterday. Kraft shares rose 0.7 percent at 12:48 p.m. in New York Stock Exchange trading, increasing the value of its cash-and-stock offer to about 769 pence per Cadbury share.

Kraft has received acceptances from 1.5 percent of Cadbury shareholders, the Oreo cookie maker said today. Kraft yesterday pledged to use the net proceeds of its U.S. pizza unit sale to Nestle SA to boost the cash component of the 10.9 billion-pound ($17 billion) offer. Nestle ruled out bidding for Cadbury.

"A 900-pence plus bid is a fantasy now," said Phil Spencer, who helps manage shares including Cadbury for private clients at Brewin Dolphin Ltd., which has 20 billion pounds under management. "There's a feeling of nervousness in the market that this is as good as it's going to get. Clients are wondering if they should book some profits now rather than see Kraft walk away and the shares fall to 700 pence."

'Not Unhelpful' Cadbury has repeatedly called Kraft's offer "derisory" and said it was "contemptuous" of the company's inherent value. Kraft has maintained it will be "disciplined" on price and has been urged by Berkshire Hathaway, Kraft's biggest investor, not to overpay by using too many of its own shares. The value of Kraft's bid didn't change with the higher cash component.

"Berkshire Hathaway's intervention, while embarrassing for Kraft management, is arguably ultimately not unhelpful to their cause," Martin Deboo, an analyst at Investec Securities in London, said in a note. "We read Berkshire not as trying to impose a veto, but challenging Kraft's management to back their convictions with more cash, and hence debt, and less equity."

Kraft can still afford to make an improved bid of as much as 820 pence a share for the Dairy Milk maker, Deboo said.

Paying 'Full Retail' Buffett's statement shows he believes Kraft's stock is a good investment, said Cadbury investor Mario Gabelli, chairman and chief executive officer of Rye, New York-based Gamco Investors Inc. At the same time, Berkshire is warning Kraft not to overpay, said Gabelli, 67, whose company owned almost 2.8 million American depositary shares of Cadbury as of June 30 and about 1.1 million Kraft shares as of Sept. 30. Gamco also owns Hershey Co. stock.

"He doesn't want you to pay full retail for a company with your stock at wholesale," said Gabelli, whose mutual-fund firm managed about $21 billion of assets as of June 30. Kraft may still have to "add a little bit more to get the deal."

Cadbury was down 7 pence to 772 pence as of 4:35 p.m. in London. The spread between the shares and Kraft's bid was 0.4 percent. Kraft added 20 cents to $28.97 on the New York Stock Exchange. Hershey declined 1 cent to $37.16.

Kraft's bonds fell today amid speculation the foodmaker will issue debt to fund its bid for Cadbury following Buffett's statement yesterday.

The yield on Kraft's $2 billion of 6.125 percent bonds due 2018 increased 10 basis points today to 195 basis points more than similar-maturity U.S. Treasuries, according Jefferies & Co. Inc. prices on Bloomberg. The spread on Kraft's 2 billion euros ($2.9 billion) of 2012 notes widened 1 basis point to 151. Bond yields move inversely to prices.

Hershey Meeting Hershey's board met on Jan. 4 without reaching a decision on whether to make a bid for Cadbury, said the people familiar with the matter, who declined to be identified because the talks are private. The board has yet to arrange financing for an offer, the people said. Hershey spokesman Kirk Saville declined to comment.

Some members of Hershey's controlling trust, led by former Pennsylvania Attorney General LeRoy Zimmerman, have been advocating a deal, while Chief Executive Officer David West is among those concerned about the debt a purchase would entail, the people said. Tim Reeves, a spokesman for the Hershey Trust, declined to comment.

Kraft said today the acceptances were received as of 1 p.m. U.K. time yesterday, the same day it extended the offer deadline.

To contact the reporters on this story: Andrew Cleary in London at acleary7@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net.

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