Sweet Surrender: Cadbury Accepts New Kraft Offer

To appease Warren Buffett, who owns a 9.4% stake in Kraft and who had warned not to overpay for Cadbury, Kraft said it was issuing only 265 million new shares compared with its original plan to issue 370 million.

The enlarged group includes Cadbury's Dairy Milk chocolate and Trident gum and Kraft's Milka, Toblerone and Terry's chocolate brands, among others.

While management mentioned "meaningful cost savings" following the deal, no mention yet was made of possible job losses at Cadbury 46,000 global workforce. Kraft has 98,000 employees and 168 plants.

Meanwhile, nothing was heard from The Hershey Co. (HSY), which was given until Jan. 25 to make a competing bid. Cadbury shareholders now have until Feb. 2 to decide whether to accept a deal that values the shares at 13 times the group's estimated earnings before interest, tax, depreciation and amortisation in 2009. CEO Irene Rosenfeld said "I believe paying 13-times EBITDA for an asset of this quality is a very good price."

The deal gives Kraft, already the world's second-largest food group after Nestle, a new growth engine. Kraft already said that despite the higher price the deal will still meet Kraft's goals of adding to earnings by the second year after closing, maintaining Kraft's dividend and its investment grade credit rating. This means the deal would be accretive to 2011 earnings by around 5 cents on a cash basis and give a mid-teens return on investment, well in excess of Kraft's cost of capital.