Reaction: Cadbury falls to leveraged bid

5.44pm: The sense of betrayal that people feel about Cadbury is hard to convey in print, but Steve Morris has just recorded this great package of interviews from Bournville . Worth a quick listen. 4.21pm: Some interesting factoids from Thomson Reuters for the statistically-minded. * The Kraft/Cadbury deal is the 8th largest foreign acquisition of a UK company ever, it was also the largest announced last year * It will be the 3rd largest completed hostile acquisition of a UK company ever, after Grupo Ferrovial's $30 bln acquisition of BAA and KKRs $21.4bln bid for Alliance Boots * The Kraft/Cadbury deal is the largest European Food & Beverage deal ever and the 7th largest global food & beverage deal of all time Thomson Reuters also claims that in the last decade the UK has been the 2nd most open market to foreign investment after the US (only in 2004 & 2005 did it surpass the US) although I am not sure how this is calculated, so I merely pass it on. After three years of working in the US, my experience is that there may be lots of small and middle-size foreign takeovers, but almost no household names of the type we have seen in abundance here . When they do happen (especially bids from China or the Middle East), the US tends to be more far protectionist than we are here. 3.32pm: In case anyone is still in doubt that Cadbury really is toast, there is a interesting wrinkle to emerge from closer study of the takeover document . Neil Hume at the FT has spotted that the deal no longer requires the agreement of Kraft shareholders (who had been very jumpy) because the increased cash component reduces the number of new shares to be issued. Share price movements confirm this is a done deal. 1.59pm: Other highlights from the conference call: Kraft has ruled out making any immediate divestments, apart from any assets it is forced to sell to satisfy antitrust regulators. Rosenfeld cites India and Mexico as two markets where Kraft will be much more powerful once the deal is concluded. Timothy McLevish, Kraft's chief financial officer, is also on the call and suggests there is little chance of a rival bidder emerging at this late stage: We feel quite confident that we have put a very fair price on the table. I would be very surprised to see a counter-bidder. Shares in Hershey, perhaps the only company that could possibly launch a credible counter-punch, have risen 2.6% in pre-market trading - suggesting that a bid is most unlikely. London-based Warren Ackerman of Evolution Securities then tried to probe Kraft about the future for Cadbury's UK workforce. Rosenfeld reiterates her commitment that she is not planning to swing the axe, and claims Kraft could even create more jobs in Britain. I believe the enhanced scale of the combined company will let us continue to invest in Bournville, as well as keeping operations running in Keynsham. We will be a net importer of jobs into the UK. That's the end of the call, with the American operator telling everyone to "have a wonderful day". 1.48pm: In stark contrast with the gloom of Bournville, it's all smiles in Northfield, Illinois, where Kraft's top brass are now holding a conference call with financial analysts. When not mopping up congratulations from Wall Street's finest, Irene Rosenfeld declared that the Cadbury deal was a "transformational combination". She said that investors in both companies would soon be holding shares in a company with "growth prospects in the top tier of global food companies". Cynics might suggest that this will come as more of a change for Kraft's shareholders than Cadbury's.... On the issue of cost synergies, Rosenfeld said that she discovered more overlap between the two firms after meeting with Cadbury, especially in the "general and administrative" and "corporate" sectors. 12.57pm: My colleague Steven Morris has just been down to the Cadbury factory in Bournville and says the mood is incredibly grim: It felt a little bit like a death in the family in Bournville today. Just about everyone in this leafy model village on the edge of Birmingham has worked at the famous factory or has a relative who has done so. Even those few who had nothing at all to do with Cadbury had something to say about the famous brand. At Beryl's Florists, Julie Vaughan, said the whole village was in shock. 'Cadbury is what Bournville is all about. We're really worried about what is going to happen.' You can read Steven's full piece here . 12.42pm: Lots of angry chat on Twitter , where Cadbury is now the fourth biggest trending term. Times columnist @Sathnam Sanghera is fuming: "The West Midlands after 12 years of Labour: Rover sold to Chinese, Cadbury's to the yanks..." Former FT colleague @JohnWillman has this interesting rejoinder: "You should blame the Cadbury family. If they hadn't sold the family silver to the stock market, it wld still be UK controlled." Coincidently (I think) restaurant owner @Henry_Leon asks: "Does anyone know where i can buy grated choc for proper hot chocolate? all our suppliers went bust" And @hwallop is less kind than I was about the Telegraph turning its back on the free market accusing @christoperhope of being a "sentimental socialist" for suggesting Mandelson should follow the French example and block Kraft. 12.30pm: Some dark humour emerging online this morning. This interesting remaking of the Creme Egg adverts begs the broader question about what will happen to Cadbury brands now. We've got a reporter looking at what the prospects are for consolidation or even (heaven forbid) a change in the ingredients, but in the meantime it's worth looking at this piece we carried recently by sweets expert (what a job title) Tim Richardson who thinks it could be curtains for Curly Wurly. Top-sellers such as Dairy Milk, Crunchie and Creme Egg will surely survive. But what about niche brands which don't see spectacular sales but go on and on for years, and which many of us love with a passion? These are bars such as the chewy Star Bar, the venerable Fry's Chocolate Cream (which dates back to the mid 19th century) and the crazy Curly Wurly. These may face the chop if Kraft's number crunchers take a pessimistic (or short-term) view; after all, the chocolate brands Kraft already owns are sure-fire international sellers, familiar at duty-free shops everywhere: Toblerone, Daim and Milka – Curly Wurly is not exactly the jet-setters' choc of choice. 12.14pm: The Unite union has also expressed its concern about "a sad day for UK manufacturing". Picking up the point I made earlier about debt, national officer Jennie Formby says: We have very real fears about how Kraft will repay its debt, particularly as it has ratcheted it up still further in order to purchase Cadbury. Whatever good intentions Kraft may have towards Cadbury's workforce, the sad truth is there will be an irresistible imperative to pay down their debt, and this raises real fears for jobs and investment in this country. Unite is now seeking meetings with both sides in the takeover battle to try to secure guarantees about future UK operations. 12.04pm: Irene Rosenfeld, Kraft's chairman and chief executive, has been speaking about some of the backroom negotiations that led to today's deal. Apparently she was able to spy some "additional synergies for a deal" after speaking with Cadbury's chairman Roger Carr. She also declared that she has got Cadbury's for a "very good price", adding that Kraft "would pay what we thought this outfit was worth". My colleague Graeme Wearden points out that talk of "additional synergies" is unlikely to reassure those who fear heavy job losses at Cadbury's UK workforce of 6,000 people - such as the four Labour MPs who just went public with their concerns. Lynne Jones, Richard Burden, Steve McCabe and Gisela Stuart - who all represent Birmingham constituencies - said Kraft's takeover could "pose real dangers for jobs, innovation and the skill base in the West Midlands": We worry about the kind of future that Cadbury's would have as part of this giant multinational whose corporate riorities are decided a long way away from the West Midlands and from those other areas of which Cadbury's has long been a part. The MPs also pointed to the broader issue - the relative ease at which foreign firms can launch hostile bids for UK companies, and succeed. 11.59am: The most interesting counterfactual theory swirling around this morning is what would have happened if Bournville was in France? The parallels are striking (even the name sounds French) as the French defended food group Danone from a very similar American raid only a few years ago. Last night I listed 50 UK companies swallowed up by overseas predators (many of them French) but could only think of a handful that went the other way. Chris Hope at the Telegraph has an interesting take on this this morning that echoes my argument about the failures of British industrial policy: In theory, Danone would be an ideal morsel for the likes of Nestle, Kraft, or Pepsico to gobble up. That is nearly what happened in 2005 when Danone's shares bounced 20 per cent on speculation that PepsiCo might buy it. Then the French Government stepped in to draft a new "Danone law" to protect companies in "strategic industries" from takeover. It looked protectionist then. But not today, given the relative health of French industry. Perhaps Lord Mandelson should consider a "Cadbury law", to protect our national champions? 11.46am: My colleague Jill Treanor points out that there is a break clause of £117m in the details of the agreement between Cadbury and Kraft. This is the amount of money that Cadbury would have to pay Kraft in compensation if the deal doesn't go through for any reason. These are quite standard and are designed to deter rival bidders from breaking up the party. In this case though it is only likely to fuel anger toward Cadbury management as it makes it doubly hard for a white knight bidder like Hershey to come in. Cadbury would argue it allowed them to squeeze an extra 10p or 20p a share out of Kraft and they wouldn't have agreed to it if there was any realistic chance of Hershey coming in. 11.06am: One Cadbury worker has spoken about the impact that the protracted takeover battle has had on employees. He told the Press Association that there are "a lot of worried people" inside the Bournville factory: Nobody really knows what is going on or what this might mean in terms of job losses, but inside that factory there are a lot of people who are very, very worried about the future - the future of the company and their own future, their jobs and their families. "It is not a good atmosphere here today." 10.47am: Cadbury insiders tell me the real turning point was when their largest shareholder Franklin Templeton withdrew its support and privately told them it would back a Kraft bid at 830p or above. But how realistic was it to expect this US mutual fund to hold out for long in the first place? A bit of digging on the Franklin website reveals this telling remark from one of their fund managers under the heading "merger opportunities": Investment bankers are relating that their calendars are very full these days, so we believe the merger arbitrage space could continue to be quite fruitful for us over the next six to nine months. A good example of this acquisition trend is Kraft Foods recent bid for UK-based confectionary maker Cadbury, which has been an undervalued equity holding of Mutual Series for some time. In fact, Mutual Series has been one of Cadbury's biggest investors. The Mutual Series team identified the confectioner some time ago when it was trading at a deep discount to the team's estimate of its intrinsic value, long before Kraft Foods' unsolicited takeover approach. Kraft took its hostile bid to Cadbury's shareholders in early November, and we are presently awaiting a resolution. 10.31am: More City reaction is coming in, and Jeremy Batstone-Carr of Charles Stanley has given today's offer a rather lukewarm reaction. He calls the offer price "somewhat on the low side of other deals struck in the global Food Producers sector", based on a comparison with Cadbury's earnings. Batstone-Carr also questions Cadbury's claim that it had achieved a good price for shareholders: Although we always considered that 850p could be enough to win shareholder support we have to admit surprise at how meekly Cadbury has apparently acquiesced. The UK-based confectioner has made much, over the duration of the offer period, of the justification for remaining a stand alone business. Trading has improved markedly over the past six months and only last week Chairman Mr Roger Carr had confidently predicted that the company's share price could be over £10.00 in due course as the fruits of that trading improvement, coupled with the "Vision into Action" programme, were harvested. And perhaps worryingly for Cadbury workers, Batstone-Carr reckons that Kraft will beat its own target for cost savings and synergies of $675m per year. 10.23am: The Takeover Panel has also just given US chocolate giant Hershey and Italy's Ferrero a deadline of 7am next Monday to say whether they will launch their own rival offer for Cadbury. Back in November the two firms both announced they might entering the fray , and at one stage were considering a joint bid. However, the chances of either making a late attempt to trump Kraft now appears remote. 10.01am: With Cadbury's shares hovering around 837p this morning, the City appears to be discounting the possibility of a late rival bid. We are also hearing that Cadbury's major shareholders will accept Kraft's terms. Standard Life (who yesterday indicated that Kraft would need to pay 900p per share ) is now backing the offer. David Cumming, its head of UK equities, just said that "We are supportive of the management's decision, although the achieved price is slightly light of our stated target." 9.39am: There's little in the Kraft offer details to reassure Cadbury employees. All it says is: Kraft Foods has given assurances to Cadbury that, on the Final Offer becoming or being declared wholly unconditional, the existing contractual employment rights, including pension rights, of all employees will be fully safeguarded. That's pretty much meaningless given that existing employment law demands most of that. Crucially, there appears to be no promise on jobs. 9.34am: That was quick. Gordon Brown has come out and commented on the bid. Reuters report the prime minister warning he is "determined that levels of UK investment in Cadbury are maintained and jobs secured". Hard to see how he can guarantee that when the deal is all but done already. He's at a press conference with the new EU president so I guess there's a limit to how flagrantly he can flout European competition law by criticising the deal. 9.32am: The details of the Kraft bid for Cadbury are out and it's worse than expected for the British confectionery giant. The majority of the offer (500p, or 510p if you include a special dividend) is in cash, which is one of the reasons it is almost certain to be accepted by Cadbury shareholders following the management recommendation. The catch is that this will saddle Kraft with far more debt than was expected when the process started. In effect Cadbury has fallen to a leveraged takeover of the type that we thought we might have seen the last of. The reason for this is almost certainly the intervention of Kraft investor Warren Buffett, who was determined not to see too many extra shares issued in a way that would dilute his stake. I'll try to find some analysis of what this all does to Kraft's balance sheet now, but it will be interesting to see what it does to its share price when the US market opens. 9.32am: The details of the Kraft bid for Cadbury are out and it's worse than expected for the British confectionery giant. The majority of the offer (500p, or 510p if you include a special dividend) is in cash, which is one of the reasons it is almost certain to be accepted by Cadbury shareholders following the management recommendation. The catch is that this will saddle Kraft with far more debt than was expected when the process started. In effect Cadbury has fallen to a leveraged takeover of the type that we thought we might have seen the last of. The reason for this is almost certainly the intervention of Kraft investor Warren Buffett, who was determined not to see too many extra shares issued in a way that would dilute his stake. I'll try to find some analysis of what this all does to Kraft's balance sheet now, but it will be interesting to see what it does to its share price when the US market opens.