The last chief executive to defend a FTSE 100 company successfully against a hostile takeover bid detailed last night what Cadbury must do to preserve its independence. Rick Haythornthwaite urged the confectioner, which is fighting a £9.8 billion takeover bid from Kraft, to stay focused on its shareholders and to keep communicating to its global workforce.

He also warned Todd Stitzer, the American chief executive of Cadbury, to beware a “dawn raid”, in which a bidding company buys shares in the target, often at the beginning of a trading session, employing the element of surprise.

In May 2000 Mr Haythornthwaite was chief executive of Blue Circle, the cement manufacturer, when he staged a successful defence against an unsolicited £3.65 billion takeover bid from Lafarge, the huge French building materials company. It was a rare example of a FTSE 100 company staving off a hostile bid — and the first successful defence by a blue-chip group against an all-cash offer for almost two decades.

At times during the takeover battle, Blue Circle’s position appeared hopeless, particularly when Lafarge swooped into the market to snap up a 20 per cent stake in its target and Dresdner Kleinwort Benson, its adviser, bought a further 9.6 per cent. However, during the takeover battle, Blue Circle unveiled a number of eye-catching managerial initiatives that pleased shareholders. This led to several institutional investors publicly rejecting the offer as being too low.

Mr Haythornthwaite said that there were many key things that Cadbury would need to do. He told The Times: “The first thing is to make damn sure that this is all about the shareholders. Every doubt about management must be kept out of that. If you are taking the high ground, in shareholder value, you must stick to that and defend it. You must defend every inch — there may be a tendency to concede a point, but you must not do that.

“Part of that is defending your equity. There is nothing more debilitating than a bear hug [whereby a bidder publishes an open letter outlining a takeover proposal to pressure the board of its target into negotiating — as Kraft did with Cadbury]. And, no matter how good your advisers are, there is nothing more depressing than waking up one morning and finding that there’s been a dawn raid.”

Mr Haythornthwaite, who sold Blue Circle to Lafarge a year after the original bid at a much higher price, said that he had three specific tips for Mr Stitzer. He said: “The first of these is to delegate business. This is an incredibly intense process and anyone who thinks they can continue with the day-to-day running of the business and run the bid defence is deluding themselves — so delegate.

“The second is to ride the wave. Defending a takeover bid can be an incredibly motivating time for everyone and it can also highlight morale in the company. Keeping that sense of tradition and esprit de corps is also very important to a victor [in a bid battle].

“The third thing is to stay close to your people and communicate daily. When our battle was over, Lafarge told me that, no matter what they did, wherever it was in the world, we were ready for them. I wrote to all our people every morning and I did not mince my words. If we had had a bad day the day before, I would be brutally honest in telling people. You have to do that — it’s a battle. And often it is not very pleasant.”

In the short term, Cadbury’s tactics are likely to involve firming up its shareholder base. It will reiterate to investors precisely why it has rejected Kraft’s formal offer. This should not be difficult, given that Kraft’s shares have fallen since it made its initial proposals to Cadbury, reducing the value of its offer to 709p a share from the 745p originally mooted.

Kraft, on the other hand, is playing the long game. It is hoping that a market correction, something that many analysts fear could happen, will spook Cadbury shareholders into accepting its offer. This is something that Cadbury acknowledged last month when it asked the Takeover Panel to impose an early deadline for Kraft to “put up or shut up”.

In the meantime, Kraft is betting that no counter-bidders will emerge, a reasonable assumption given that the obvious candidates — Nestlé, Hershey and Unilever — appear to have ruled themselves out. This, in theory, should give Kraft plenty of time to court Cadbury’s shareholders and find out for itself how much they are seeking.

Once Kraft has done this, analysts expect an improved offer at some point, probably just north of 800p, which would put pressure on Roger Carr, the Cadbury chairman, to open the books. Cadbury, of course, may prefer not to sit still. It could buy a smaller rival, such as Ferrero Rocher, of Italy, which would cost about £3 billion, or Lindt und Sprüngli, the Swiss chocolatier, which had a market value of £3.6 billion last night. Such a move would be an effective “poison pill” — a strategy aimed at making itself less attractive to the acquirer — but would also run the risk of alienating Cadbury’s own shareholders.

In the meantime, Kraft’s acquisition currency, the American dollar, is falling against sterling, potentially making its job much harder.

Ratings warning

Standard & Poor’s, the credit ratings agency, warned again last night that it could cut Kraft’s rating after the US group formalised its £9.8 billion bid for Cadbury. S&P said that Kraft’s debt remained on “CreditWatch with negative implications”, meaning that the rating could be lowered after a review.

It said that the “substantial incremental debt” added to Kraft’s balance sheet to fund the proposed deal would “weaken key credit metrics”.

S&P added: “In our opinion, a meaningfully debt-financed transaction would weaken Kraft’s credit protection measures below current levels, to a point at which, we believe, no longer supports the existing ratings.”

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