Cadbury launches new TV advert as Kraft steps up takeover pressure
Cadbury has launched its latest eye-catching television advert as rival Kraft cranks up the pressure for a takeover.
The Birmingham firm’s drumming gorilla advert was named the best in the world at an annual ceremony last year and the new film, which features a giant floating tribal head which brings music and cocoa pods to an African village, promotes the company’s move to Fairtrade chocolate for Dairy Milk bars.
Meanwhile the world’s second richest man Warren Buffett, Kraft’s second-largest shareholder, has heaped more speculation about a takeover by suggesting that US chocolate-maker Hershey may join Kraft to help fund the Cadbury bid and break up the spoils between them.
The new advert – the latest star in a series of eye-catching promotions – also sees the company branching out into the music business.
Makers of the advert, aired for the first time during ITV1’s X Factor on Saturday, worked with Ghanaian superstar Tinny to produce the track Zingolo, which is also being released as a single which can be downloaded from iTunes.
The film was made in Ghana, source of the Fairtrade cocoa which is used in Dairy Milk, and features some of the farmers which grow it.
Cadbury marketing director Phil Rumbol said: “We were inspired by Ghana’s love of music so it seemed the perfect way to capture the spirit of the country was through a track. We hope we’ll bring a smile to people’s faces.”
Profits from the sale of the single will go towards funding education projects in cocoa-growing areas of Ghana.
Meanwhile, Cadbury is bracing itself for more takeover interest after so far fending off a bid from Kraft that was first launched on September 7.
Analysts say Kraft could raise its bid 20 per cent – to £12.3 billion – to seal a takeover deal for Britain’s Cadbury without losing a key investment grade rating on its debt.
With a counterbid seen as unlikely, a phoney war between Kraft and Cadbury could go on for weeks, with Kraft leaving time to put pressure on Cadbury’s board to talk, and Cadbury reluctant to engage without a better formal offer on the table.
“We believe at a price of 860p Kraft can increase the cash component of the transaction to at least 65 percent, and maintain an investment grade rating,” said analyst David Tovar at Bank of America.
Credit Suisse’s Robert Moskow says Kraft has communicated with the debt rating agencies, and it sounds as if they are comfortable with what it has presented so far.
Mr Moskow, who believes Kraft will need to pay 850-875p to win the battle for the confectionery group, said: “We believe Kraft has a lot of leeway with the agencies to increase its bid.”
Kraft’s bid of 40 per cent cash and the rest in new Kraft shares initially valued Cadbury at £10.2 billion, but a fall in Kraft shares puts the current value at 720p or £9.9 billion, compared with the current share price of 786-1/2p.
A further boost to Kraft’s bid could come from a reassessment of its potential annual cost savings target of £384 million, as the savings equate to just 6.5 per cent of Cadbury’s annual sales, compared with deals in the food sector of between six and 10 percent.
“We believe a savings target of $750 million (£461 million), or 7.8 per cent of Cadbury sales, is not unrealistic to use,” said Mr Tovar.