Chocs away

Cadbury: Cadbury hasn't pulled any chocolate rabbits out of its hat. The UK confectioner's final defence document is probably sufficient to see off Kraft's current hostile bid. But a higher offer from the US group, or a late appearance from Ferrero/Hershey, would throw Cadbury’s future back in the balance.

Cadbury is sticking to its strategy of demonstrating its value as an independent company. The company has already given a clear commitment for revenue growth of 5-7 per cent this year, and trading margins of 16-18 per cent by 2013, compared with 13.5 percent last year. It is also dangling the carrot of double-digit dividend growth under shareholders' noses.

There is no question that Cadbury weathered the extraordinarily tough environment of 2009, delivering underlying sales growth and a 10 per cent dividend increase. This underscores the argument that a team which knows the business and can achieve these results in such demanding times is one that is worth sticking with.

That view is likely to appeal as long as Kraft sticks with its cash-and-share offer, which currently values Cadbury shares at 762 pence — 15 pence below the company’s share price. Kraft Chief Executive Irene Rosenfeld may yet be able to win over some shareholders with her last-minute charm offensive. But their focus will now be more on price than personality when it comes to deciding whether to tender their shares.

Cadbury argues that at 7.70 pounds, the Kraft offer is worth 12 times 2009 Ebitda. This is below the 14.3x multiple it paid for the Adams chewing gum business in 2003 and a long way from 18.5x multiple paid by Mars for Wrigley in 2008. For Kraft to get near the multiple paid for Adams, it would have to raise its bid above nine pounds. Given Kraft shareholder Warren Buffett’s well-publicised concerns that the company might be tempted to overpay, that is not going to happen.

Cadbury’s defence should help reassure investors of its value as a standalone company. But if a higher offer does come through — either from Kraft or a Ferrero/Hershey combination — preserving Cadbury’s independence will become a whole lot harder.