The likelihood of a bidding war for British candy maker Cadbury PLC receded on Tuesday after Switzerland's Nestle SA ruled itself out as a suitor — and instead gave Kraft Foods Inc. a bundle of cash to sweeten its own hostile offer.
Kraft said it will increase the proportion of cash in its existing 10.3 billion pound ($16.5 billion) offer for Cadbury after agreeing to sell its lucrative North American pizza business to Nestle for $3.7 billion pounds.
Rumors that Nestle was gathering a war chest for a rival bid had been rife on Monday after the maker of Nescafe coffee and KitKat chocolate agreed to sell off its 52 percent stake in eyecare company Alcon for $28 billion and announced it would spend less cash on share buybacks.
But Tuesday's announcements leave Kraft as the only declared bidder for Cadbury, though the British maker of Dairy Milk chocolate and Dentyne gum has said it has received expressions of interest from The Hershey Co. of the United States and Italy's Ferrero International SA.
"Today's news does ... remove some of the uncertainty surrounding exactly who might be bidding for Cadbury," said Jeremy Batstone-Carr, an analyst at Charles Stanley & Co.
"Whilst we imagine that vague speculation will continue regarding Hershey's apparent interest in making a counterbid for Cadbury largely, in our view, to preserve the status quo in global confectionary manufacture, Nestle's decision effectively leaves Kraft as the overwhelming front-runner," he added.
Cadbury shares, which have surged in recent weeks on speculation of a bidding war, dropped back 1.9 percent to 790 pence on the London Stock Exchange.
That is still well above the original 742 pence value of Kraft's offer — 300 pence in cash and 0.2589 Kraft shares for each Cadbury share — reflecting the odds that changing the cash component is unlikely to be enough to win over shareholders who are seeking a higher overall price.
Cadbury, which recently outlined its credentials as a stand-alone company by raising its long-term performance targets and producing better-than-expected profit margins, said the offer continued to undervalue the British company.
"Kraft has once again missed the point," it said. "Despite this tinkering, the Kraft offer remains unchanged and derisory with less than half the consideration in cash."
Cadbury is due to provide a trading update, including the key Christmas season, next week.
Kraft, based in Northfield, Illinois, still has until Jan. 19 to revise its offer.
However, some analysts still believe that another suitor may emerge.
"We think that Hershey is keen to make a deal with Cadbury," analysts at Numis stockbrokers wrote in a research note. "In reality Nestle is acting as a fund provider to the Cadbury deal and we would not be surprised to see the Swiss group play that role again by buying assets from Hershey, the Kit Kat brand in the U.S. being an obvious candidate."
Kraft said Tuesday it will use an amount equivalent to the net proceeds from the pizza sale, which it estimates to be 60 pence per Cadbury share, to fund a partial cash alternative to its offer.
It also extended the deadline for shareholders to accept its bid until Feb. 2 — the last day in the 60-day timetable set by the U.K. Takeover Panel.
Kraft, whose brands include Philadelphia cream cheese and Oreo cookies, said it was responding to "the desire expressed" by some Cadbury shareholders to have more of the offer in cash and "to be more sparing in its use of undervalued Kraft Foods shares as currency for the offer."
"Kraft Foods continues to believe that its share price is depressed as a consequence of a number of short term factors which it believes will dissipate once the uncertainty surrounding its offer for Cadbury is resolved," the company said in a statement.
Nestle, meanwhile, is gaining a pizza business that includes the Tombstone and Jack's brands in the U.S., the Delissio brand in Canada and the California Pizza Kitchen trademark license. It also includes two Wisconsin manufacturing facilities in Medford and Little Chute, Wisconsin.
Nestle said the acquisition will add a "new strategic pillar" to its frozen food portfolio in the U.S. and Canada, making it a significant player in the $37 billion a year pizza market. Nestle is already represented in the U.S. with brands such as Stouffer's, Lean Cuisine, Buitoni, Hot Pockets and Lean Pockets.
Shares in the Swiss company rose 1.5 percent to 50.95 Swiss francs.
About 3,400 employees are expected to transfer to Nestle.
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