CEOInterviews.AICNBC Interviews Andrew Bonfield, CFO of Cadbury on the Kraft takeover bid

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Host0:00

Speaking a lot about Kraft today, it's unanimously rejected their offer of 7 pounds 24 pence per share. Steve has been speaking with the CFO...

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Steve Sedgwick0:09

Hello everybody, we've been speaking exclusively to Andrew Bonfield, who is the CFO of Cadbury. We also took a very quick word with Todd Stitzer as well, who's the chief executive. Those two gentlemen, along with their chairman Roger Carr, have been robustly defending what they call inadequate in terms of that Kraft bid, which as we all remember came out on September the 7th. It's worth 3 pounds of cash per Cadbury share plus 0.2589 new Kraft shares per Cadbury share. And as Ross said, it is currently worth around about 7 pounds and 24 pence per share. The market obviously believes that isn't enough, because the Cadbury shares are currently trading at exactly 7 pounds and 92 pence per share. But what you can see is shares in this company before the bid date in September were trading at a mean of 5 pounds 50, between 5 pounds and 5 pounds 75. But the company believes with their new growth prospects, their vision strategy which they outlined again today with enhanced targets going forward to 2013, they believe this is a bid which significantly undervalues the company. We spoke to Andrew Bonfield, and this is what he had to say about Kraft and why it wasn't right for Cadbury.

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Andrew Bonfield1:25

I mean, the bid is not right, effectively derisory. It significantly undervalues the company. It's an EV/EBITDA multiple of around 11.6 times versus sector multiples which have been at 14 times plus the deals historically. So this really does undervalue the company and the growth potential that we have. So we believe that the shareholders should reject the bid and focus on Cadbury as an independent company going forward. The bid is currently worth around about 705 pence per share, at about 16 billion US dollars. What price do they need to show to get you to the table?

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Steve Sedgwick1:54

Hello everybody, we've been speaking exclusively to Andrew Bonfield, who is the CFO of Cadbury. We also took a very quick word with Todd Stitzer as well, who's the chief executive. Those two gentlemen, along with their chairman Roger Carr, have been robustly defending what they call inadequate in terms of that Kraft bid. It's worth 3 pounds of cash per Cadbury share plus 0.2589 new Kraft shares per Cadbury share. It is currently worth around about 7 pounds and 24 pence per share. The market obviously believes that isn't enough, because the Cadbury shares are currently trading at exactly 7 pounds and 92 pence per share. Shares in this company before the bid date in September were trading at a mean of 5 pounds 50, between 5 pounds and 5 pounds 75. But the company believes with their new growth prospects and their vision strategy outlined again today with enhanced targets going forward to 2013, they believe this is a bid which significantly undervalues the company. We spoke to Andrew Bonfield and this is what he had to say about Kraft and why it wasn't right for Cadbury.

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Andrew Bonfield3:05

The bid is not right, effectively derisory. It significantly undervalues the company. It's an EV/EBITDA multiple of around 11.6 times versus sector multiples which have been at 14 times plus the deals historically. So this really does undervalue the company and the growth potential that we have. So we believe that the shareholders should reject the bid and focus on Cadbury as an independent company going forward. The bid is currently worth around about 705 pence per share and about 16 billion US dollars.

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Steve Sedgwick3:38

What price do they need to show to get you to the table?

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Andrew Bonfield3:41

Well, we can't talk about price as a result of the Takeover Panel rules, but I would highlight the fact that the EV/EBITDA multiple that they're offering based on 2009 EBITDA is actually around 11.6 times. And again, just to reiterate, deals in this sector have been done over 14 times historically.

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Steve Sedgwick3:56

Todd Stitzer, Roger Carr, and yourself are saying the bid substantially undervalues Cadbury, but what price is it probably worth then?

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Andrew Bonfield4:05

I'm not going to comment on what value the board would consider. The board would obviously have to take into account their duties and responsibilities, and they're very aware of those as part of this bid process.

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Steve Sedgwick4:15

There is an understanding that you have the backing of a large amount of Cadbury shareholders at the moment, but at what price would they like you to get into negotiations with Kraft?

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Andrew Bonfield4:26

Obviously, we are in contact daily with our shareholder base, and obviously today is a big day for us as well, because they will be talking to us. We'll be going on roadshows meeting with them. We have a good idea where the shareholder base is, but unfortunately I'm not going to tell you about that.

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Steve Sedgwick4:41

You make a lot of comment in the defence document about being independent. How important is independence? I mean, would you consider giving that up if you were the predator rather than the prey?

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Andrew Bonfield4:52

Well, look at the company. The company is the second largest confectionery company, pure-play, and it's the only pure-play listed confectionery company in the market today. We are a unique asset and a unique investment. We have great growth potential, growing our top line going forward between 5 and 7 percent per annum, growing our margins to 16 to 18 percent, and generating significant operating cash flow, operating cash conversion ratio between 80 and 90 percent going forward, and also growing dividends by double-digit rates going forward. This is a great company, it's a great attractive investment, and we believe it deserves to be independent.

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Steve Sedgwick5:29

You talked a lot about independence. Is that more important than price?

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Andrew Bonfield5:35

At the end of the day, everything has a value, and we have to look at that value as part of the equation. But the company and the board are very focused on what the value is. They understand what the value of the company is and are all aware of that, and would obviously take that into account in any situation that did arise.

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Steve Sedgwick5:50

Have you been talking though to potential white knights in preference to accepting a bid from Kraft?

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Andrew Bonfield5:55

We have had a number of approaches from third parties. The board is fully aware of their responsibilities but have decided at this point in time not to allow us to communicate about that, and we will obviously until such time as disclosure is appropriate in that situation.

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Steve Sedgwick6:10

Are you talking to Hershey?

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Andrew Bonfield6:13

All I can say to you is that, as the board said, we cannot comment on individual cases. We are obviously looking at making sure that we do the appropriate actions for shareholders.

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Steve Sedgwick6:24

So despite you saying that independence is one of the most important factors, would you sacrifice that to find another deal as an alternative to Kraft?

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Andrew Bonfield6:32

Well, I think the focus is principally on independence. That is the primary focus. We have obviously, if somebody puts a significant amount of value on the company, we would obviously have to consider that, and the board is fully aware of its responsibilities in that regard.

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Steve Sedgwick6:45

Andrew, do you believe that Kraft can afford Cadbury?

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Andrew Bonfield6:50

I think it's going to be a stretch for them to go from where they are today to what we believe is a full and fair price for Cadbury. I think, you know, but it's over to them. They have to make that transition.

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Steve Sedgwick7:01

How important is growth in emerging markets for your defence?

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Andrew Bonfield7:04

They're significant. In fact, we've been growing our emerging market businesses at around 14 percent per annum over the past several years.

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Steve Sedgwick7:20

Absolutely, and what I love is if you look at his eyes every time you asked him about Hershey or Nestlé, they sort of light up. Just the two points: who are you talking to, and what price can you sell out to? And I'm afraid that is what the market wants to know. I could have asked him more about organic growth stories elsewhere, but I think those are the questions. And of course, he was never going to answer what price, but the light in his eyes, the light appeared... maybe desperation.

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Host7:47

Steve, good stuff. Thanks very much indeed for that. That was Andrew Bonfield, the CFO of Cadbury, talking to Steve Sedgwick. That's it for today's edition of Strictly Money. Thanks once again to Roger Nightingale. US Ford Box is underway in the...