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January 20, 2010

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Cadbury accepts and pushes Kraft's higher bid to investors

BRITISH candy maker Cadbury PLC yesterday accepted and recommended to shareholders Kraft's improved takeover offer worth US$18.9 billion, potentially ending a months-long corporate battle to create the world's largest maker of chocolate and sweets.

The United States food conglomerate said the board of Cadbury, maker of Creme Eggs and Dentyne gum, had unanimously endorsed the offer worth 840 pence per share, or 11.9 billion pounds in total.

The revised bid is for 500 pence cash and 0.1874 new Kraft shares for each Cadbury share, still somewhat less than what some analysts believed the company is worth.

Kraft Foods Inc's previous offer of 10.5 billion pounds valued Cadbury at about 770 pence, but was dismissed by the British company's management as "derisory."

The combined companies would be the world leader in chocolate and sweets, Kraft said, and No. 2 globally in the high-growth gum market.

"We have great respect for Cadbury's brands, heritage and people. We believe they will thrive as part of Kraft Foods," said Kraft's CEO Irene Rosenfield.

"This recommended offer represents a compelling opportunity for Cadbury shareholders, providing both immediate value certainty and upside potential in the combined company."

Cadbury Chairman Roger Carr, who had led a spirited defense against Kraft's previous offer, said he believed the deal "represents good value for Cadbury shareholders."

Kraft still has to persuade a majority of Cadbury shareholders to accept the deal, and the door remains open until Saturday for The Hershey Co to jump in with a rival bid.

Kraft predicted pretax cost savings of at least US$675 million a year once the combination has been working for three years.

Yesterday was the deadline for Kraft to raise its offer. Cadbury shares moved above 800 pence on Monday, indicating the market was looking for Kraft to jump to that level or higher.

The British company had fought hard against Kraft's initial offer announced in December, rejecting it as a "derisory" bid from an unfocused, underperforming conglomerate.

The agreed price is 13 times Cadbury's earnings before interest, taxes, depreciation and amortization; Cadbury had argued that similar recent takeovers in the sector had been for 14 times EBITDA or more.

Kraft may still have a battle winning over Cadbury shareholders, and The Hershey Co has until Saturday to decide if it wants to make a rival bid.

February 2 is the deadline for Kraft to win acceptance from holders of a majority of Cadbury shares.


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