Kraft sticks to Cadbury bid; Cisco extends Tandberg offer; Enzon may use deal to redeem debt

By Cristal Cody

Tupelo, Miss., Nov. 9 - Kraft Foods Inc., which noted that no other competing bidders have emerged, stuck to its original offer in a formal bid made on Monday for British confectioner Cadbury plc.

Likewise, without a competing bid in another situation, Cisco Systems, Inc. has no reason to increase its $3 billion buyout price for Norwegian videoconferencing company Tandberg ASA, despite the objections by holders of 30% of Tandberg shares, an analyst told Prospect News.

Meanwhile, an analyst said in an interview on Monday that Enzon Pharmaceuticals, Inc. likely will buy back some of its outstanding stock and $250 million in convertible debt with the proceeds of the $327 million sale of its specialty pharmaceutical business to sigma-tau Group.

On Wall Street, investors rallied to send the Dow Jones Industrial Average to a 13-month high. The Dow closed up 203.52 points, or 2.03%, at 10,226.94.

The Standard & Poor's 500 index climbed 23.78 points, or 2.22%, to 1,093.08, and the Nasdaq Composite index moved up 41.62 points, or 1.97%, to end at 2,154.06.

Kraft goes hostile

Cadbury shares rose 0.40% to close at 761p on Monday.

The offer for 300p cash and 0.2589 of a share of Kraft for each share of Cadbury values the company at 717p a share, based on Kraft's closing share price of $26.78 on Friday.

The price represents a 26% premium over Cadbury's closing stock price of 568p a share on Sept. 4, the last day before Kraft announced a potential deal.

Kraft was required by the U.K. Panel on Takeovers and Mergers to announce by Monday whether it would or would not make a formal bid for Cadbury.

"We remain convinced of the strategic merits for both companies of combining Kraft Foods and Cadbury," Irene Rosenfeld, Kraft's chairman and chief executive officer, said in the statement. "We believe that our proposal offers the best immediate and long-term value for Cadbury's shareholders and for the company itself compared with any other option currently available, including Cadbury remaining independent."

Kraft also said it will pay 1,200p and 1.0356 shares for each Cadbury American Depositary Share.

In a statement early Monday, Cadbury noted that the bid's implied value is 4% lower than when the offer was announced Sept. 7 due to a fall in Kraft's share price.

"The repetition of a proposal which is now of less value and lower than the current Cadbury share price does not make it any more attractive," Roger Carr, Cadbury's chairman, said in the statement. "Kraft's offer does not come remotely close to reflecting the true value of our company, and involves the unattractive prospect of the absorption of Cadbury into a low growth conglomerate business model."

Cadbury is one of the world's largest confectionery businesses with brands that include Green & Black's chocolate, Trident, Dentyne and Bubbaloo gums and candy makers Cadbury Eclairs, Bassett's and the Natural Confectionery Co.

Northfield, Ill.-based Kraft is the world's second-largest food company with brands such as Cote d'Or and Toblerone chocolates, Oreo cookies and Ritz crackers.

Kraft said the union with Cadbury would help transform the company into a "leading snack, confectionery and quick meals company. Combining the Kraft Foods and Cadbury businesses would create a global confectionery leader, with a portfolio including more than 40 confectionery brands, each with annual sales in excess of $100 million."

Kraft said it plans to fund the deal with its own resources and a new credit facility arranged by a syndicate of banks.

Shareholders of Kraft also would be required to approve the issuance of new shares.

Kraft's stock fell 25 cents, or 0.93%, to $26.53 on Monday.

Cisco to wait out shareholders

Cisco said in a statement Monday that it will extend its tender offer for shares of Tandberg through Nov. 18.

The offer, launched in October, was scheduled to expire on Monday.

Cisco kept the same offer terms intact despite objections from 30% of Tandberg's shareholders over the price.

Tandberg's board has recommended shareholders accept San Jose, Calif.-based Cisco's offer of 153 Norwegian kroner per share.

OppenheimerFunds, Inc., an investment adviser on behalf of funds and accounts holding 5.78% of Tandberg's outstanding shares, said Wednesday that it will not vote for the deal. Another shareholder group that represents 24% of Tandberg shares also has rejected the bid.

Cisco's offer is conditional upon acceptance by 90% of shares.

"Cisco is probably the only bidder here," Bill Choi, an analyst with Jefferies & Co., told Prospect News on Monday. "Without a potential other bidder, there is no real impetus to increase the price. Cisco also doesn't want to set up a bad precedent of paying up additional amounts each time some shareholders want a higher price."

Choi likened the tender offer's extension to a game of chicken.

"Without another bidder, Cisco has a good chance of winning the deal at the original price," he said.

But if enough shares are not tendered, Cisco also could "just walk away. That's always a possibility," Choi said. "Cisco has been looking to do this [videoconferencing capabilities] internally for awhile."

Tandberg shares added 0.53% to close at Kr 151.80.

Cisco shares rose 17 cents, or 0.71%, to $23.99.

Enzon sale conditioned on financing

Enzon's drug sale to Italian drug-developer sigma-tau includes $300 million in cash and up to $27 million in royalties based on certain milestones for its four specialty pharmaceutical products: immunodeficiency disease drug Adagen, fungal treatment Abelcet, meningitis drug DepoCyt and leukemia drug Oncaspar.

The sale also includes a manufacturing facility in Indianapolis, which will be purchased by Rome-based sigma-tau's U.S. subsidiary, Sigma-Tau Pharmaceuticals, Inc. of Gaithersburg, Md.

Enzon said in the release that the transaction requires that sigma-tau receive the funds to close the deal under a bank commitment letter.

Enzon and sigma-tau representatives did not return calls for additional comment.

Aaron Lindberg, an analyst with WM Smith Securities, Inc., told Prospect News on Monday that financing "is always a concern."

"But as far as the deal itself, we think it's an excellent move," he said. "It's the strategic move that made the most sense for Enzon at this point in terms of unlocking the most value for the company. The next most likely step is the company buys back stock and bonds."

Enzon has $250 million in outstanding convertible debt.

"We think after this transaction closes, Enzon will be cash-flow positive and have more than $500,000 cash available," Lindberg said. "Selling the specialty pharmaceutical business was the best strategic move for the company."

Because Bridgewater, N.J.-based Enzon will sell the bulk of its assets in a plan to concentrate on its experimental drugs and technologies, the deal will require a shareholder vote and antitrust approvals.

"Enzon's board of directors is evaluating options to return most of the value of this sale to shareholders," Alex Denner, chairman of Enzon, said in a statement. "We will refocus the company on our royalty business, pipeline and technology platforms."

The transaction is expected to be completed during the first quarter of 2010.

Enzon shares closed up 85 cents, or 9.47%, at $9.83 on Monday.

Mentioned in this article:

Cadbury plc London: CBRY

Cisco Systems, Inc. Nasdaq: CSCO

Enzon Pharmaceuticals, Inc. Nasdaq: ENZN

Kraft Foods Inc. NYSE: KFT

Tandberg ASA Oslo: TAA

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