Kraft improves hostile offer for Cadbury after selling pizza business to Nestle

Kraft improves Cadbury offer

LONDON — The battle for British candy maker Cadbury PLC was thrown further into doubt Tuesday when a major Kraft Foods Inc. shareholder voted not to endorse the U.S. company’s hostile takeover bid, even as Kraft sweetened its offer with more cash.

Billionaire Warren Buffett’s Berkshire Hathaway Inc. said it had voted against Kraft’s proposal to issue 370 million shares to finance part of its 10.3 billion pound ($16.5 billion) bid, saying it was worried it gave Kraft a “blank check” to raise the bid even higher.

Kraft earlier Tuesday increased the cash part of its offer after agreeing to sell its North American pizza business to Nestle for $3.7 billion. Nestle also said it wouldn’t be making its own offer for Cadbury, as some analysts had speculated.

That leaves Kraft the sole bidder for now, though the British maker of Dairy Milk chocolate and Dentyne gum has said it has received expressions of interest from The Hershey Co. of the United States and Italy’s Ferrero International SA.

Kraft said the move was a response to Cadbury shareholders who want more cash, and Kraft shareholders like Berkshire who want the company to be more sparing in its use of stock, Kraft spokesman Michael Mitchell said.

“We are obviously listening to our shareholders,” Mitchell said.

Cadbury dismissed Kraft’s plan to use the money raised from selling brands such as Tombstone and Jack’s to increase the proportion of cash in its offer without raising its total value as “tinkering.”

Shares Cadbury were down 3.7 percent at 775 pence, after briefly diving to 764.4 pence following Berkshire Hathaway’s announcement. They’re still well above the 742 pence-per-share value of Kraft’s offer, reflecting the odds that changing the cash component is unlikely to be enough to win over shareholders seeking a higher price.

Berkshire Hathaway, which holds 9.4 percent of Kraft’s stock, said that the share issue would give Kraft “a blank check allowing it to change its offer to Cadbury in any way it wishes.”

“And we worry very much that, indeed, there will be an additional change from the revision announced this morning,” it added. “To state the matter simply, a shareholder voting “yes” today is authorizing a huge transaction without knowing its cost or the means of payment.”

Berkshire declined to comment further on its position Tuesday.

“(Buffett) is certainly one of the most respected investors in the world, and we take his opinion seriously,” Mitchell said.

Kraft, whose brands include Philadelphia cream cheese and Oreo cookies, earlier said its change to offer reflected calls by some Cadbury shareholders to have more of the offer in cash and “to be more sparing in its use of undervalued Kraft Foods shares as currency for the offer.”

“Kraft Foods continues to believe that its share price is depressed as a consequence of a number of short term factors which it believes will dissipate once the uncertainty surrounding its offer for Cadbury is resolved,” the company said in a statement.

Kraft said Tuesday it will use an amount equivalent to the net proceeds from the pizza sale, which it estimates to be 60 pence per Cadbury share, to fund a partial cash alternative to its offer. Kraft’s previous offer was 300 pence in cash and 0.2589 Kraft shares for each Cadbury share.

It also extended the deadline for shareholders to accept its bid until Feb. 2 — the last day in the 60-day timetable set by the U.K. Takeover Panel.

It has until Jan. 19 to revise its offer further. The company would not comment as to whether any further offer increases are being considered.

Berkshire said it will vote to issue shares only if it does not think the final offer hurts value for Kraft shareholders. It did not specify what would constitute a suitable offer.

Cadbury, which recently outlined its credentials as a stand-alone company by raising its long-term performance targets and producing better-than-expected profit margins, said the offer continued to undervalue the British company.

“Kraft has once again missed the point,” it said. “Despite this tinkering, the Kraft offer remains unchanged and derisory with less than half the consideration in cash.”

Some analysts still believe that another suitor may emerge.

“We think that Hershey is keen to make a deal with Cadbury,” analysts at Numis stockbrokers wrote in a research note. “In reality, Nestle is acting as a fund provider to the Cadbury deal and we would not be surprised to see the Swiss group play that role again by buying assets from Hershey, the Kit Kat brand in the U.S. being an obvious candidate.”

Nestle, meanwhile, is gaining a pizza business that includes the Tombstone and Jack’s brands in the U.S., the Delissio brand in Canada and the California Pizza Kitchen trademark license. It also includes two Wisconsin manufacturing facilities in Medford and Little Chute, Wisconsin.

Nestle said the acquisition will add a “new strategic pillar” to its frozen food portfolio in the U.S. and Canada, making it a significant player in the $37 billion a year pizza market. Nestle is already represented in the U.S. with brands such as Stouffer’s, Lean Cuisine, Buitoni, Hot Pockets and Lean Pockets.

Shares in the Swiss company rose 1.5 percent to 50.95 Swiss francs.

About 3,400 employees are expected to transfer to Nestle.

Frank Jordans in Geneva and Sarah Skidmore in Portland, Ore., contributed to this report.