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Kraft and Cadbury Deal

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Special Report Dexia AM Risk Arbitrage Process
February 2010

A Focus on the Kraft / Cadbury deal

TRANSACTION HISTORY Kraft approach
September 7th - Kraft approached Cadbury Possible hostile offer at 745p per share: 300p cash + 0.2589 KFT Cadbury’s board rejected proposal November 9th - Put up or shut up deadline

Kraft Formal Offer
November 9th - Formal offer on the initial same terms December 14th - Cadbury published defense document January 2nd - Press rumor: Ferrero, Hersey or Private Equity fund could bid Speculation that Nestlé could be a white knight Potential counter bidders: Hershey January 8th – Kraft sells Pizza Business to Nestle for 3.2bn USD Nestlé said they won’t bid for Cadbury Warren Buffet criticized excess use of Kraft’s shares in Cadbury deal. January 18th – Last day for Kraft to revise offer (in the absence of a counter bid)

Kraft Revised Offer
January 19th - Kraft increasing bid for Cadbury to 850p per share New deal terms are: 500p + 0.1874 KFT + 10p special Dividend Cadbury’s board has recommended the improved offer January 25th – Ferrero and Hersey said they won’t bid for Cadbury February 2nd – Kraft offer is declared unconditional

OUR RECOMMENDATION
Set up the risk arbitrage spread at -6% flat Recommended position size 2% for DRA and 4% for DLSRA Fit with diversification of portfolio: high quality deal (top players and high quality assets) Expected return 6% flat / 15% annualized

©Dexia Asset Management - Editorial Date: 02 Mar. 10 - See legal notice at the end of the document

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Special Report Dexia AM Risk Arbitrage Process
February 2010
TRADING
Two engines of performance: Merger arbitrage spread and opportunistic trading
Opportunistic trading: buy @ average price 786p Set up risk arb spread @ -6%: offer @ 725p versus 770 share price Expected return>10% flat Opportunistic trading: sell @ average...

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