Cadbury believes that Kraft will struggle to make a "materially" better offer for the British confectionery firm following Warren Buffet's attack on the amount of stock the American giant was planning to issue as part of the bid.
By Kamal Ahmed and Amy Wilson
Published: 10:28PM GMT 09 Jan 2010
Roger Carr, the chairman of Cadbury, told The Sunday Telegraph that Mr Buffett's interjection last week was "embarrassing" for Irene Rosenfeld, the chief executive of Kraft and had weakened its position.
Mr Buffett, whose company Berkshire Hathaway is Kraft's largest shareholder, last week announced that Kraft shareholders should not write a "blank cheque" by agreeing to issue 370m new Kraft shares to finance the bid.
"More than anything it must have been very embarrassing for the Kraft management e_SEnD they were clearly given a dressing down in public by their major shareholder," Mr Carr said.
"I think it demonstrates what authority Warren Buffett has over the business and the significance of his view in the way that Kraft is run. I think what he did was to impose some pretty heavy restraints on the management. He knows that the rating agencies are applying the same pressure on the debt model.
"The constraint of both of these pressure points would appear to limit the ability of Kraft to make a material change in their offer."
Mr Carr's comments come ahead of a crucial week in the battle between Kraft and Cadbury. The American conglomerate's £10.2bn bid for the British confectionery firm has been dismissed as "derisory" by Cadbury.
This week Cadbury will produce both its defence document against the bid and its end-of-year trading statement which is predicted to show strong sales and growth throughout 2009.
It will then be left to Kraft to make a final offer to be considered by the Cadbury board and shareholders before January 19. Indications are that Kraft will have to increase its bid to at least 800p a share to have a chance of being successful. At present the offer is valued at about 760p a share.
Mr Carr dismissed some analysts' suggestions that Cadbury was in danger of over-egging its future projections to maintain its position against Kraft.
"The management is clear that whatever performance commitments they have given to the market, it is these numbers on which they will be judged and on which their reputations will stand or fall," he said.
Mr Carr added that Kraft's sale of its North American pizza business last week had also weakened its position even though its share price had risen.
"The Kraft share price movement isn't a reflection of it being a better business overnight e_SEnD in fact, you could argue that the sale of the pizza business makes it a little worse," he said. "The position of the Kraft price and the Cadbury share price today is not the relevant comparison. The only relevant number is their final offer relative to the real worth of Cadbury."
The markets are sending contradictory messages about the deal. According to Data Explorers, about 1.6pc of Cadbury's stock was out on loan to short sellers last week, down from 3.7pc in late November, suggesting the number of people betting a deal will happen has increased.
Some hedge funds were not willing to take the risk - US fund Mason Capital exited its entire stake in Cadbury, reportedly at a loss. JGD Management also reduced its stake. But Franklin Resources, which bought into Cadbury because it saw the company as a takeover candidate before Kraft's approach, raised its stake by more than 2m shares.
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