Cadbury Passed on Kraft's Sweet $15B Offer, Investor Aches

One of Cadbury PLC's U.S. investors is suing the British chocolate giant's board and CEO for allegedly not acting in the shareholders' best interests by batting away a $15.7 billion takeover bid from Kraft.

Steward International Enhanced Index Fund says it would "lose out massively" if Cadbury CEO Todd Stitzer and seven other board members refuse to negotiate with Kraft.

Cadbury, founded in 1824, is the world's second largest confectionary group. The company's headquarters are in Uxbridge, England. Two-thirds of its investors are American.

According to the complaint, filed in the U.S. District Court for the District of New Jersey, Kraft made public its informal offer for Cadbury Sept. 7, after the British firm allegedly rejected the bid. Cadbury told investors that Kraft's informal bid seriously undervalued the company.

However, Steward says there is more to the board's decision than that. It says the company's executives do not want to entertain the offer because it would mean giving up their "lavish compensation and positions of power" if they sold out to Kraft.

The company's stock "has not been on par with the lavish compensation" the board has received, Steward adds.

"Rather than acting in the best interests of the company as their fiduciary duties mandate, the defendants, without good-faith consideration, rejected Kraft's offer," the complaint says.

In a statement Cadbury said the lawsuit is "entirely without merit."

The company also stressed that Kraft has yet to make a formal offer for the company under British law.

In late September Cadbury urged the United Kingdom's Takeover Panel to issue what is commonly referred to as a "put up or shut up" notice to Kraft.

The agency complied Oct. 1 by ordering Kraft to make a formal offer by Nov. 9 if it is serious about the merger. The order means Kraft must have financing in place before making such an offer.

"We've noted the Takeover Panel's decision and understand the implications," Kraft told the media.

The suit seeks a court order requiring Cadbury's top officials to respond "in good faith" to offers that are in the best interest of shareholders.

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Peter S. Pearlman and Jeffrey W. Herrmann of Cohn Lifland Pearlman Herrmann & Knopf in Saddle Brook, N.J., represent Steward.