Kraft may extend Cadbury offer as shares trade above bid price

Kraft Foods Inc. will probably extend its $16.9 billion hostile bid for Cadbury Plc, analysts said, as the U.K. chocolate maker's shares trade above the offer on expectations of a higher price.

Cadbury shareholders must tender their stock by Jan. 5 at 1 p.m. London time, according to Kraft's Dec. 4 offer. The world's second-largest foodmaker can raise its bid until Jan. 19, the deadline set by the U.K. takeover panel. Cadbury shares are trading 8.3 percent above Kraft's current offer.

"The market is clearly saying the current bid is not going to happen," said David Crawford, who doesn't plan to this week tender the 650,000 Cadbury shares he holds at Octopus Investment Ltd., which has about 1.5 billion pounds under management.

Investors are betting the U.S. maker of Oreo cookies will raise its bid, or another suitor will step in and drive up the price. Cadbury has rebuffed Kraft, raised its own sales and profitability targets and said it has received interest from others. Ferrero SpA and Hershey Co. have both said they are considering their options regarding Cadbury.

Kraft should wait until the Jan. 19th deadline, as other acquirers have done in similar situations, said Tai Mey Lim, a risk arbitrage and special situations analyst at Icap Plc in London.

Michael Mitchell, a spokesman for Kraft, declined to comment. Trevor Datson, a spokesman for Cadbury, declined to comment on whether Kraft would extend its offer.

Uxbridge, England-based Cadbury closed at 798 pence in London, giving the chocolate maker a market capitalization of about 11 billion pounds. Kraft's offer currently values Cadbury at about 737 pence per share. Crawford, who bought the Cadbury shares after Kraft's initial approach, is waiting for an offer at 825 pence a share or more.

Unless a third party makes a counterbid, Kraft may increase its offer to as much as 850 pence, said Lim. Northfield-based Kraft has said its offer represents the best value to Cadbury investors and that it will be "disciplined'' in its approach.

Investors are "holding out for a higher price, but we think Cadbury shareholders may ultimately accept an offer rather than risk the shares trading down," said Erin Swanson, an analyst with Morningstar Inc. in Chicago.

Cadbury, which also makes Trident gum, said on Dec. 14 that the operating margin, its most important performance measure in a five-year turnaround plan, will widen to between 16 percent and 18 percent by the end of 2013, and increased its sales forecast for the same period. Cadbury Chairman Roger Carr the same day said Kraft's offer is "contemptuous" of the confectioner's inherent value.

Still, Cadbury will be bought eventually, said Crawford.

"I'm betting on a takeover," said the investor. "I think there's a 70 percent chance Cadbury will be bought. I'm not bothered whether that comes from Kraft or another bidder."