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Kraft sells pizza business to Nestlé to fund Cadbury offer

By Caroline Scott-Thomas , 05-Jan-2010

Kraft has sold its frozen pizza business to Nestlé to help fund its offer for Cadbury after Nestlé pulled out of the bidding for the British confectioner.

Kraft has said that it intends to use the net proceeds from the $3.7bn sale to sweeten its offer to Cadbury shareholders, saying that many have expressed a wish for more of the deal to be in cash rather than Kraft shares. It said it would increase the cash portion by 60 pence per share, to 360 pence, but that it would decrease the share portion by an equivalent amount, meaning that depending on market conditions, the new deal would not necessarily increase the value of its offer.

However, the company is widely expected to increase its bid to get shareholders on side by a January 19 deadline imposed under British takeover rules. Shareholders would then have until February 2 to accept the deal. If Kraft failed to win over at least 50 percent of Cadbury shareholders by then it would have to wait a year before it could bid again.

Kraft’s original bid, worth £10.2bn ($16.4bn) or 745 pence per share, was rejected as derisory by Cadbury’s board and a subsequent slide in Kraft’s share price and a weakening dollar have since devalued the offer. At the close of business on Monday, the deal was worth 738 pence per share.

Kraft has also said that it “continues to believe that its share price is depressed as a consequence of a number of short term factors which it believes will dissipate once the uncertainty surrounding its Offer for Cadbury is resolved.”

Following Nestlé’s withdrawal from the bidding, it is still possible that Hershey or Ferrero could put forward an offer, both having expressed their interest in Cadbury in November, but it is unclear whether they would be able to secure the necessary funds to make a rival bid.

Nestlé’s acquisition

Nestlé did not elaborate on its decision to pull out of the bidding for Cadbury.

It said in a statement that Kraft’s frozen pizza business will become part of Nestlé USA, subject to US and Canadian regulatory approval. The North American frozen pizza market is the world’s largest, and Kraft’s profit from the business was estimated at $291m in 2009.

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