Cadbury agrees Kraft takeover bid

Cadbury is to be taken over by the US food company Kraft after its board approved a new increased bid.

The Cadbury board has advised its shareholders to accept a new offer of 840 pence a share – valuing the company at £11.5bn ($18.9bn).

Kraft said the deal would create a “global confectionery leader”.

But there are renewed fears over possible job cuts at Cadbury’s UK operations as a result of the agreed takeover.

Shareholders have until 2 February to give the deal their backing, with the US confectioner Hershey apparently out of the race.

The offer will consist of 500 pence in cash, with the rest made of Kraft shares. Kraft will borrow £7bn ($11.5bn) to finance the deal.

“We believe the offer represents good value for Cadbury shareholders… and will now work with the Kraft Foods’ management to ensure the continued success and growth of the business,” said Cadbury’s chief executive Roger Carr.

Irene Rosenfeld, the chairman and chief executive of Kraft Foods, said the deal was good news for shareholders and staff.

“We have great respect for Cadbury’s brands, heritage and people,” she said. “We believe they will thrive as part of Kraft Foods.”

Shareholder approval

The deal is a significant increase on earlier Kraft bids, which were flatly rejected by the Cadbury board as “derisory”.

Kraft’s previous offer valued the company at £10.5bn – a bid Cadbury’s chairman Roger Carr said was an attempt to “buy Cadbury on the cheap”.

Shareholders are expected to agree to the takeover.

David Cumming, head of UK equities at Cadbury shareholder Standard Life, said that he would be agreeing, despite hoping for a higher price.

“I won’t go against the view of Cadbury’s management,” he told the BBC.

“Kraft are getting a good deal. It’s sad that Cadbury is gone, but business is business.”

In early trading on Tuesday, Cadbury shares were up 3.5%.

Job fears

Unions have expressed concerns that the Kraft takeover could cost jobs.

The company has given no specific assurances over UK jobs, though it says it wants to invest in the Bournville site and maintain production at Somerdale, near Bristol, also known as Keynsham.

It has not ruled out cuts, and staff numbers at Cadbury’s head office in Uxbridge are expected to be reduced, according to the BBC’s business editor Robert Peston.

Kraft also said it expected “meaningful cost savings” as a result of the merger.

Jennie Formby from the Unite union said the need for Kraft to cut costs could mean staff cuts in the longer-term.

“We are concerned about the levels of debt that Kraft has,” she told the BBC.

“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.”

Those fears were shared by David Bailey, professor at Coventry University Business School.

“Serious questions need to be asked about Kraft’s intentions,” he said.

“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.”

BBC