Kraft Fails To Convince; Investors Pin Hopes On Hershey Bid

Kraft Foods Inc. 's (KFT) latest attempt to win over investors in Cadbury PLC (CBY) met with a lukewarm reception and shareholders are instead pinning their hopes on a rival bid from Hershey Co. (HSY), people familiar with the situation told Dow Jones Newswires Thursday.

Kraft's chief executive Irene Rosenfeld has spent the last few days meeting with key investors in London as time runs out for the U.S. food giant to increase its GBP10 billion bid for the U.K. confectioner.

"She said nothing particularly interesting or new," said an investor who attended one of the meetings.

"What is clear is that shareholders want between 800 pence and 850 pence and as much cash as possible--no-one wants Kraft shares," the investor added.

Kraft's formal bid--the only one on the table--offers Cadbury shareholders 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share. It is made up of 60% stock and 40% cash.

Following an agreement to sell its U.S. and Canadian frozen pizza business to Nestle S.A. (NESN.VX), the Swiss consumer giant, for $3.7 billion Jan.5, Kraft said it was going to give Cadbury shareholders a "partial cash alternative" to its existing offer.

The new proposal, which has yet to be formalized, offers 60 pence per Cadbury share, bringing the cash part of the deal to 360 a share. Kraft did not say how much the stock element of the cash-and-shares bid would reduce by, but insisted that the increased cash element did not represent a "raised offer." This suggests the stock element of the deal will be cut.

Cadbury dismissed this altered offer which it said "remains derisory" and investors are similarly unimpressed, hoping that U.S.-based Hershey will come in with a higher offer including a larger cash element.

"My gut feeling is that Kraft will raise its offer to between 835 pence and 850 pence a share. If Hershey then comes in higher, as it must if it serious about a bid, then Kraft will have to think hard," said another investor who was at the meeting.

Rosenfeld gave every indication that Kraft needs the scale and scope that a takeover of Cadbury would bring, especially the U.K. group's presence in emerging markets, the investor said. Kraft could definitely pay 900 pence but won't unless forced to, he added.

Kraft has until Jan. 19 to raise its bid while any rival bids must be in by Jan. 23.

Hershey is continuing to work toward a bid for Cadbury, according to media reports and despite other reports that Italian chocolate maker Ferrero Spa has decided not to participate in a joint offer. A spokesman for Hershey declined to comment.

"Shares have risen on the possibility of a Hershey bid and we are hoping for more cash as well as a higher bid," said one investor who had earlier suggested its fund would sell if any bid reached 800 pence..

Shares in Cadbury at 1230 GMT Thursday were up 0.8% or 7 pence and at 796 pence, having reversed a decline over the last week which saw the E.U. clear Kraft's bid, Nestle pull out of the auction and Warren Buffett, Kraft's biggest shareholder, say his holding company Berkshire Hathaway Inc. (BRKA, BRKB) wouldn't support the issuance of new Kraft stock to pay for a Cadbury acquisition.

Kraft's stock closed down 1.6% at $29.23 Wednesday, making its offer for Cadbury worth 764 pence a share and valuing the U.K. company at GBP10.5 billion, or $17.1 billion.

-By Marietta Cauchi, Dow Jones Newswires; +44 207 842 9241; marietta.cauchi@dowjones.com

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