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article imageKraft deal to purchase Cadbury moves ahead

By Chris Dade     Jan 19, 2010 in Business
The board of U.K.-based confectionery company Cadbury has finally agreed to a takeover bid from U.S. food company Kraft. The purchase price is £11.5 billion ($18.9 billion), or 840 pence ($13.70) a share.
Four months have passed since Kraft, whose top shareholder is reportedly American billionaire Warren Buffet, first began negotiating to acquire Cadbury, a company The Money Times says was founded in 1866 by brothers John and Benjamin Cadbury.
The company's own website says it began in 1824 when John Cadbury, a Quaker, opened a shop in Birmingham in Central England.
Cadbury employes some 45,000 people in 60 different countries. Kraft is headquartered in Illinois, in the United States.
The BBC explains that Cadbury shareholders have until Feb. 2 to accept or reject the offer from Kraft. A deal that would create what the U.S. food giant has described as a "global confectionery leader."
Roger Carr, Cadbury Chairman, said the deal represents "good value for Cadbury shareholders." His board rejected a previous offer, calling it "derisory."
Bloomberg confirms the offer accepted by the Cadbury board is close to 9 percent higher than an earlier bid of 769 pence a share, and is made up of 40 percent stock and 60 percent cash.
Reuters says the 840 pence share price, which rises to 850 pence when a special dividend is added, consists of 500 pence in cash and 0.1874 new Kraft shares. The original offer, which Reuters asserts valued Cadbury shares at 745 pence each, consisted of 300 pence in cash and 0.2589 new Kraft shares. The reduction in Kraft shares in the new offer is reportedly due to pressure put on Kraft CEO Irene Rosenfeld by Warren Buffet.
Kraft is borrowing £7 billion ($11.5 billion) to finance and will create a company with annual sales of $50 billion.
While Bloomberg and Reuters seem to have gathered favorable reactions to the deal, there is less enthusiasm among unions in the U.K. who are fearful of job losses.
The Money Times is reporting that Kraft has plans to cut 10,000 jobs worldwide once the takeover is complete, the BBC observing that Kraft has indicated that the takeover will result in "meaningful cost savings."
Kraft has said it intends to invest in the Cadbury site at Bournville in Central England and continue production at a plant in the West of England.
However, Jennie Formby of the U.K.'s largest union Unite said:
We are concerned about the levels of debt that Kraft has. The sad truth is that when they have to pay down that debt, the soft option is jobs and conditions. When you have to make cost savings of the magnitude they will need to make, you have to ask where those cost savings will be made
Ms. Formby found support for her analysis from David Bailey of Coventry University Business School. He is quoted by the BBC as saying:
Serious questions need to be asked about Kraft's intentions. Kraft already has a track record of cutting production and moving production abroad. There's no guarantee that they'll keep production in the UK in the long run.
Upon hearing of the likely deal, U.K. Prime Minister Gordon Brown told a news conference:
The one thing I want to say is this: We are determined that the levels of investment that take place in Cadbury in the United Kingdom are maintained.
The opportunity still exists for rival bids to be made, but according to one Zurich analyst, Jon Cox:
This looks like a deal. It’s hard to believe anybody can come in and break up the party.
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