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Kraft will need to sweeten Cadbury offer

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CADBURY/Kraft’s cash and stock offer for Cadbury may not have passed muster with the target’s board. But while this is not yet game over, it now looks likely that someone will make a snack of the British confectionery group.

Cadbury’s shares have basically tracked the FTSE for years — despite the efforts of Chief Executive Todd Stitzer to liven up the group’s performance, including demerging its U.S. soft drinks.

But while a takeover has long been on the agenda and Irene Rosenfeld — Chairman and CEO of the U.S. group — makes a convincing argument for combining the two companies, she will need to sweeten her bid to force Cadbury to the table.

Expectations of a higher bid mean Cadbury shares flirted with 800 pence per share, versus the 745 pence value of Kraft’s outline offer. Some analysts believe the price could go far higher. If you take the 19x EBITDA multiple paid by Mars for Wrigley chewing gum last year and apply it to the Cadbury gum business while putting a 13x EBITDA figure on its chocolates, Evolution Securities estimates the price on offer should be as high as 1,100-1,200 pence.

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