Bid could see Cadbury up marketing spend

Cadbury could go on the offensive and “throw everything” at marketing its core brands in a bid to maintain its independence after it rejected a formal bid from Kraft, say branding experts.

US food company Kraft made a bid for Cadbury, maker of Dairy Milk, hours before a regulatory deadline expired. At £9.8bn, the bid was less than the £10.2bn approach in September and was rejected by the Cadbury board as “derisory”.

Experts agree the bid severely undervalues a company with such powerful brands and which is seeing improvements both financially and in terms of its product development and marketing.

The bid has triggered the Takeover Panel’s 60-day takeover timetable. During this period Kraft is expected to try to convince Cadbury shareholders of the merits of its proposal, while Cadbury will likely bid to retain its independence.

Kraft now has 28 days in which to send the “offer” – which amounts to 717p a share – to Cadbury shareholders; from then Cadbury has 14 days to send a defence document.

According to branding experts, part of Cadbury’s defence could be to push its core brands in an attempt to increase volume sales and reassure shareholders.

“Assuming Cadbury does want to maintain its independence then I can see it throwing off the shackles [brought on by the recession] and chucking everything but the kitchen sink into marketing its core lines,” says Tom Blackett, chairman at brand consultants Siegel&Gale.

Last month, Cadbury announced that sales in the third quarter rose by 7% – ahead of expectations of a 4% rise. However, higher profit margins were partly reflected through lower spending on advertising and promotions.

Stephen Cheliotis, chief executive of The Centre for Brand Analysis, adds: “Cadbury may not go crazy on marketing spend because it knows there will be another set of quarterly results before Kraft has to make a final bid, but [marketing spend] is certainly a dilemma. Don’t forget, it is getting a lot of free PR from this at the moment.”

Cadbury declined to comment on the speculation. However, sources suggest there won’t be a drastic change in commercial strategy, while rumours that promotions would be increased to drive sales were branded “nonsense” by an insider.

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