British candy maker Cadbury PLC on Tuesday stepped up its defense against a hostile takeover bid from Kraft Foods Inc. by announcing that both its full-year revenue growth and profit margins will beat market expectations.
Cadbury argued that the share portion of Kraft's 10.3 billion pound ($16.5 billion) bid is unappealing because of the U.S. company's "poor track record of delivery."
"Don't let Kraft steal your company with its derisory offer," Cadbury chairman Roger Carr said to shareholders.
Cadbury shares were fractionally lower at 780.5 pence on the London Stock Exchange. Kraft's offer currently values Cadbury at 763 pence per share. The higher market price suggests investors are hoping for a better offer.
Kraft, whose products include Velveeta cheese and Oreo cookies, has until Feb. 2 to line up a majority of Cadbury shareholders to accept the offer.
Cadbury, maker of Dairy Milk chocolate and Dentyne gum, said it expected to report a 5 percent growth in business revenue for 2009, or 11 percent higher on an actual currency basis. It said it had improved its trading margin by 1.55 percentage points to 13.5 percent.
In contrast, Cadbury described Kraft as "an unfocused, conglomerate business model with significant exposure to lower growth categories and a track record of missed financial targets."
Last week, Kraft sold its North American pizza business to Nestle for $3.7 billion, and used the proceeds to post an alternative offer with a greater cash component. It did not, however, raise the total value of its bid.
Kraft shares are currently worth 42 percent less than in the initial public offering price in 2001, Cadbury said.
Cadbury said Kraft's offer equals 12 times earnings before interest, taxes, depreciation and amortization, while comparable transactions in the sector have ranges from 14.3 to 18.5 times EBITDA.
Analysts at Panmure Gordon said the sector range implied that Cadbury was worth 900 pence or more, but "we suspect that an increased offer in the range of 825 pence-850 pence could well be sufficient to clinch the deal."
"Kraft's offer is very significantly below all comparable transactions in the sector; applying any of the comparable multiples would imply a price per share far above Kraft's offer," said Carr.
"Over half the offer consideration is in the form of Kraft shares, exposing our shareholders to Kraft's low growth conglomerate business model, its long history of under-performance and its track record of missed targets."
Cadbury says it will publish further preliminary details of its 2009 results on Thursday.
"Looking forward to 2010, we are targeting revenue growth within our 5-7 percent goal range," said Cadbury CEO Todd Stitzer.
"We expect benefits from our restructuring and reconfiguration actions in 2010 to drive continued progress to achieve our targets of good mid-teens margin by 2011 and 16-18 percent margin by 2013," he added.
In an interview with the British Broadcasting Corp., Carr added that Kraft would have to make deep cuts in Cadbury in order to make the takeover work.
"For Kraft to make this pay for their shareholders, they have to attract huge synergies. Synergies is a euphemism for heavy cost cuts and inevitably plants and jobs would be lost," Carr said.
"That's what happens with a takeover."