Soaring Cadbury sales strengthen opposition to bid

A ROBUST trading update from UK chocolate giant Cadbury tomorrow is set to stiffen its resistance to the hostile £9.8 billion ($16bn) takeover bid from US food giant Kraft.

Cadbury is also posting to shareholders its formal response to Kraft's offer tomorrow, a document expected to highlight the British group's resilient trading in the downturn.

City analysts expect top-line sales growth to have accelerated at the company, whose flagship products include Cadbury Dairy Milk, Flake, Green & Black's, Trident gum and Bassett's Liquorice Allsorts.

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The formal rejection of the Kraft bid is also expected to refer to good progress in Cadbury meeting new profit margin targets. It is thought a strong trading update may also spark a rash of full-year City profit forecast upgrades.

That would again be seen as putting pressure on the Americans to up their bid, which has privately been dismissed by a number of institutional shareholders.

Last week Gordon Brown gave a veiled warning to any foreign buyer who attempts to asset-strip Cadbury and move jobs out of its home city of Birmingham. However, he added that his government would not oppose a takeover bid in principle.

Workers at Cadbury are also set to launch a "Keep Cadbury Independent" campaign on Tuesday.

Alex Molloy, food producers analyst at broker Credit Suisse, is forecasting a full-year pre-tax profit at Cadbury for 2009 of 700 million. That compares with 559m in 2008. Sales at the group are expected to have jumped to 6bn from 5.4bn in the previous 12 months.

Credit Suisse recently put out a note saying that shareholders in the British company should not accept any offer under 850p a share. That compares with the current value of the bid on the table of 713p.

There has been talk of a white knight mounting a counter-bid for Cadbury, with Hershey of the US and Ferrero of Italy, as well as Swiss giant Nestl, mentioned as possible suitors. But Molloy said: "There's been plenty of noise, but I think Nestl has the only serious bid potential."

Another analyst said: "Kraft is not playing a blinder so far. For one thing, they are using 2008 Cadbury multiples for its offer, whereas most in the City believe Cadbury's earnings will be up 45 per cent this year.

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Kraft has offered concessions to European Union regulators aimed at addressing any anti-competitive concerns surrounding the deal in a few markets, but sources say no major divestitures were planned.

In the bid timetable, 9 January 2010 is the latest that Cadbury can provide new information for shareholders to make up their minds, such as changing the group's targets, or revising its 2009 outlook.