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As filed with the Securities and Exchange Commission on January 19, 2010

Registration No. 333-163483

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

KRAFT FOODS INC.

(Exact name of registrant as specified in its charter)

 

Virginia		2000		52-2284372
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

Three Lakes Drive

Northfield, Illinois 60093

(847) 646-2000

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Marc S. Firestone

Executive Vice President, Corporate & Legal Affairs and General Counsel

Kraft Foods Inc.

Three Lakes Drive

Northfield, Illinois 60093

(847) 646-2000

(Name, address, including zip code, and telephone number

including area code, of agent for service)

 

 

 

 

		Copies to:
Barbara L. Becker Andrew L. Fabens James J. Moloney Gibson, Dunn & Crutcher LLP 200 Park Avenue New York, NY 10166 (212) 351-4000		Sarah Jones Clifford Chance US LLP 31 West 52nd Street New York, NY 10019 (212) 878-8000		Philip A. Gelston Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 (212) 474-1000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this Registration Statement.

 

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  x		Accelerated filer  ¨		Non-accelerated filer  ¨		Smaller reporting company  ¨
				(Do not check if a smaller reporting company)

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

 

 

 

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The information in this prospectus/offer to exchange is not complete and may be changed. Kraft Foods Inc. may not complete the offer to exchange and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus/offer to exchange is not an offer to sell these securities and Kraft Foods Inc. is not soliciting an offer to buy these securities in any state or jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JANUARY 19, 2010

Offer to Exchange

Each Outstanding Ordinary Share

(Including Ordinary Shares Represented by American Depositary Shares)

of

Cadbury plc

by

Kraft Foods Inc.

Kraft Foods Inc., a Virginia corporation, is offering to acquire all of the issued and outstanding ordinary shares of 10 pence each of Cadbury plc, including Cadbury ordinary shares represented by American Depositary Shares, or Cadbury ADSs. Each Cadbury ADS represents four Cadbury ordinary shares. In this prospectus/offer to exchange, we refer to holders of Cadbury ordinary shares as Cadbury shareholders, and we refer to Cadbury shareholders and holders of Cadbury ADSs together as Cadbury securityholders. References in this prospectus/offer to exchange to Cadbury ADSs include the underlying Cadbury ordinary shares.

This prospectus/offer to exchange sets forth the terms of our recommended increased and final* offer for Cadbury, which we refer to as the offer. Cadbury securityholders who accept the offer are entitled to receive:

 

•

500 pence in cash and 0.1874 shares of Kraft Foods Class A common stock, without par value, which we refer to as Kraft Foods common stock, in exchange for each outstanding Cadbury ordinary share validly tendered and not withdrawn; and

 

•

2,000 pence in cash and 0.7496 shares of Kraft Foods common stock, in exchange for each outstanding Cadbury ADS validly tendered and not withdrawn.

Based on the closing share price of $29.58 per share of Kraft Foods common stock on the NYSE on January 15, 2010, and an exchange rate of $1.63 to £1.00 (as quoted by WM/Reuters on January 18, 2010), the offer has a value, in aggregate, of 840 pence per Cadbury ordinary share and $54.77 per Cadbury ADS.

If you accept the offer, you may request to vary the proportion of shares of Kraft Foods common stock and cash you will receive pursuant to a mix and match facility, including by electing to receive only cash or only shares of Kraft Foods common stock. However, your mix and match election will only be satisfied to the extent that other Cadbury securityholders make off-setting elections in the offer.

If you tender your Cadbury ordinary shares in the offer, you will receive the cash portion of the offer consideration for your Cadbury ordinary shares in pounds sterling, unless you specifically elect to receive U.S. dollars. If you tender your Cadbury ADSs in the offer, you will receive the cash portion of the offer consideration for your Cadbury ADSs in U.S. dollars, unless you specifically elect to receive pounds sterling. Please see the section of this prospectus/offer to exchange entitled “The Offer—Payment of Cash and Stock Consideration—Currency.”

Our obligation to accept for exchange, and to exchange, shares of Kraft Foods common stock for Cadbury ordinary shares, including those represented by Cadbury ADSs, is subject to a number of conditions that are described in paragraph 1 (Conditions of the Offer) of Part A of Appendix A to this prospectus/offer to exchange.

This prospectus/offer to exchange amends and supersedes information included in the prospectus/offer to exchange we filed with the Securities and Exchange Commission on December 4, 2009, which we refer to as the original prospectus/offer to exchange, as amended on December 23, 2009.

THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 8:00 A.M. NEW YORK CITY TIME (1:00 P.M. LONDON TIME) ON FEBRUARY 2, 2010, UNLESS THE INITIAL OFFER PERIOD IS EXTENDED. CADBURY ORDINARY SHARES AND CADBURY ADSs TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION OF THE INITIAL OFFER PERIOD, AS IT MAY BE EXTENDED.

All holders of Cadbury ordinary shares who are U.S. holders (within the meaning of Rule 14d-1(d) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or residents of Canada, and all holders of Cadbury ADSs, wherever located, will receive this prospectus/offer to exchange. All holders of Cadbury ordinary shares who are not U.S. holders or residents of Canada will receive separate offer documents. Cadbury securityholders will only receive the relevant offer documents if they are permitted by law to receive them.

Kraft Foods common stock trades on the New York Stock Exchange, or the NYSE, under the symbol “KFT.” Cadbury ordinary shares trade on the London Stock Exchange, or the LSE, under the symbol “CBRY.” Cadbury ADSs trade on the NYSE under the symbol “CBY.”

FOR A DISCUSSION OF RISKS AND OTHER FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH THE OFFER, PLEASE CAREFULLY READ THE SECTION OF THIS PROSPECTUS/OFFER TO EXCHANGE ENTITLED “RISK FACTORS” BEGINNING ON PAGE 19.

Kraft Foods has not authorized any person to provide any information or to make any representation in connection with the offer other than the information contained or incorporated by reference in this prospectus/offer to exchange, and if any person provides any of this information or makes any representation of this kind, you should not rely upon that information or representation as having been authorized by Kraft Foods.

None of the Securities and Exchange Commission, any state securities commission or any other regulatory authority has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus/offer to exchange. Any representation to the contrary is a criminal offense.

THIS PROSPECTUS/OFFER TO EXCHANGE IS NOT AN OFFER TO SELL SECURITIES AND IT IS NOT A SOLICITATION OF AN OFFER TO BUY SECURITIES, NOR SHALL THERE BE ANY SALE OR PURCHASE OF SECURITIES PURSUANT HERETO, IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE IS NOT PERMITTED OR WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE LAWS OF ANY SUCH JURISDICTION. IF YOU ARE IN ANY DOUBT AS TO YOUR ELIGIBILITY TO PARTICIPATE IN THE OFFER, YOU SHOULD CONTACT YOUR PROFESSIONAL ADVISER IMMEDIATELY.

*The offer is final and will not be increased, except that we reserve the right to increase the offer if there is an announcement on or after the date hereof of an offer or a possible offer for Cadbury by a third party offeror or potential offeror.

The date of this prospectus/offer to exchange is January 19, 2010

 

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TABLE OF CONTENTS

 

		Page
Note on Cadbury Information		iii
Currencies		iv
Important Dates and Times		v
Questions and Answers About the Offer		vi
Summary		1
The Companies		1
Terms of the Offer		1
Initial Offer Period; Extension of the Initial Offer Period; Subsequent Offer Period		2
Conditions of the Offer		2
Ownership of Kraft Foods After Completion of the Offer		4
Accounting Treatment		4
Regulatory Approvals		4
Financing of the Offer		4
Listing of Kraft Foods Common Stock to be Issued in Connection with the Offer and any Compulsory Acquisition		4
Comparison of Shareholders’ Rights		4
Risk Factors		4
Forward-Looking Statements		5
Notice Required under the U.K. Takeover Code		5
Recent Developments		6
Selected Historical Consolidated Financial Data of Kraft Foods		8
Selected Historical Consolidated Financial Data of Cadbury		10
Exchange Rate Information		12
Selected Unaudited Pro Forma Combined Financial Data		13
Historical and Pro Forma Per Share Data		15
Comparative Market Price and Dividend Information		17
Risk Factors		19
Risk Factors Relating to Our Business and the Business of the Combined Company		19
Risk Factors Relating to Kraft Foods Common Stock		25
Risk Factors Relating to the Offer		26
Risk Factors Relating to Market and Currency Fluctuation		30
Risk Factors Relating to Cadbury’s Business		31
The Companies		32
Kraft Foods		32
Cadbury		33
Background and Reasons for the Offer		34
Background of the Offer		34
Reasons for the Offer		41
The Offer		46
Terms of the Offer		46
Procedures for Accepting the Offer		47
Payment of Cash and Stock Consideration		54
Ownership of Kraft Foods After Completion of the Offer		55
Certain Material U.S. Federal Income and Estate Tax Consequences		55
Appraisal/Dissenters’ Rights		60
Plans for Cadbury		60
Certain Effects of the Offer		61
Financing of the Offer; Source and Amount of Funds		62
Inducement Fee		63
Purchases Outside the Offer		64
Regulatory Approvals		64

 

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		Page
Certain Relationships with Cadbury and Interests of Kraft Foods in the Offer		65
Fees and Expenses		66
Accounting Treatment		66
Listing of Kraft Foods Common Stock to be Issued in Connection with the Offer and any Compulsory Acquisition		67
General		67
Description of Kraft Foods Capital Stock		68
Common Stock		68
Preferred Stock		68
Articles of Incorporation and By-Law Provisions		69
Information on CREST Depository Interests		69
Comparison of Shareholders’ Rights		71
Unaudited U.S. GAAP Pro Forma Financial Information		81
Summary of Significant Differences Between IFRS and U.S. GAAP		94
Legal Matters		97
Experts		98
Where You Can Find More Information		99
Incorporation by Reference		100
Schedule I – Directors and Executive Officers of Kraft Foods		102
Appendix A – Conditions and Further Terms of the Offer		A-1
Appendix B – Additional Information Required by the U.K. Takeover Code		B-1

THIS PROSPECTUS/OFFER TO EXCHANGE INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT KRAFT FOODS AND CADBURY FROM DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, OR THE SEC, THAT HAVE NOT BEEN INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS/OFFER TO EXCHANGE. THIS INFORMATION IS AVAILABLE AT THE INTERNET WEB SITE THE SEC MAINTAINS AT WWW.SEC.GOV, AS WELL AS FROM OTHER SOURCES. PLEASE SEE THE SECTION OF THIS PROSPECTUS/OFFER TO EXCHANGE ENTITLED “WHERE YOU CAN FIND MORE INFORMATION.” YOU ALSO MAY REQUEST COPIES OF THESE DOCUMENTS FROM KRAFT FOODS, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST TO KRAFT FOODS’ INFORMATION AGENT AT ITS ADDRESS OR TELEPHONE NUMBER SET FORTH ON THE BACK COVER OF THIS PROSPECTUS/OFFER TO EXCHANGE. IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS, YOU MUST MAKE YOUR REQUEST NO LATER THAN JANUARY 26, 2010, OR FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE OF THE INITIAL OFFER PERIOD, AS IT MAY BE EXTENDED, WHICHEVER IS LATER.

In making their decision whether or not to accept the offer, Cadbury securityholders who are South African residents will need to take into account the South African Exchange Control Regulations issued in terms of the Currency and Exchanges Act, 1933 (the “Excon Regulations”), and consider whether or not their acceptance of the offer and their subsequent receipt of consideration for their Cadbury ADSs from Kraft Foods, whether in the form of cash and/or shares of Kraft Foods common stock, will be in compliance with the Excon Regulations.

 

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NOTE ON CADBURY INFORMATION

We have taken all information (other than certain information concerning Cadbury share options) concerning Cadbury, its business, management and operations presented or incorporated by reference in this prospectus/offer to exchange from publicly available information. This information may be examined and copies may be obtained at the places and in the manner set forth in the section of this prospectus/offer to exchange entitled “Where You Can Find More Information.” We have not had due diligence access to Cadbury or its business or management for the purposes of preparing this prospectus/offer to exchange. Therefore, non-public information concerning Cadbury’s business and financial condition was not available to us for the purpose of preparing this prospectus/offer to exchange. Although we have no knowledge that would indicate that any information or statements relating to Cadbury contained or incorporated by reference in this prospectus/offer to exchange are inaccurate or incomplete, we were not involved in the preparation of the information or the statements.

We refer to Kraft Foods and its subsidiaries, including Cadbury and its subsidiaries, after completion of the offer, as the combined company. Any financial information regarding Cadbury that may be detrimental to the combined company and that has not been publicly disclosed by Cadbury, or errors in our estimates due to the lack of cooperation from Cadbury, may have an adverse effect on the benefits we expect to achieve through the consummation of the offer.

Pursuant to Rule 409 under the Securities Act of 1933, as amended (the “Securities Act”), and Rule 12b-21 under the Exchange Act, we have requested that Cadbury provide us with information required for complete disclosure regarding Cadbury’s businesses, operations, financial condition and management. To date, we have not received such information. If we receive the information before the offer expires and we consider it to be material, reliable and appropriate, then we will amend or supplement this prospectus/offer to exchange to provide this information.

An auditor’s report was issued on Cadbury’s financial statements and included in Cadbury’s filings with the SEC. Pursuant to Rule 439 under the Securities Act, we are required to obtain the consent of Cadbury’s independent auditors to incorporate by reference their audit reports included in Cadbury’s Annual Report on Form 20-F for the year ended December 31, 2008 into this prospectus/offer to exchange. We have requested that consent from Cadbury but have not received it to date. If and when we receive this consent, we will promptly file it as an exhibit to our registration statement of which this prospectus/offer to exchange forms a part. If we do not receive such consent, there is a risk that the SEC may not declare our registration statement effective.

 

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CURRENCIES

In this prospectus/offer to exchange, unless otherwise specified or the context otherwise requires:

 

•

“pounds sterling,” “pounds,” “sterling,” “U.K. pounds,” “£,” “pence” or “p” each refer to the lawful currency of the United Kingdom;

 

•

“U.S. dollars,” “dollars” or “$” each refer to the lawful currency of the United States; and

 

•

“euro” or “€” each refer to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended.

We publish our financial statements in U.S. dollars and Cadbury publishes its financial statements in pounds sterling. Certain Kraft Foods and Cadbury financial information included in this prospectus/offer to exchange was translated using company specific exchange rates. In preparing our financial statements, we translated the results of operations of our foreign subsidiaries into U.S. dollars using average exchange rates during each period indicated. We translated balance sheet accounts into U.S. dollars using exchange rates at the end of each period indicated. According to Cadbury’s public filings, in preparing its financial statements, Cadbury translated the balance sheets of its non-U.K. subsidiaries into pounds sterling using exchange rates at the end of each period indicated. Cadbury translated the results of its non-U.K. subsidiary undertakings into pounds sterling at an average rate, calculated using the exchange rates prevailing at the end of each month during the applicable period presented. We are not making any representation to you regarding those translated amounts. Please see the section of this prospectus/offer to exchange entitled “Exchange Rate Information” for additional information regarding the exchange rates between pounds sterling and the U.S. dollar.

 

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IMPORTANT DATES AND TIMES

You should take note of the dates and times set forth in the table below in connection with the offer. These dates and times may change in accordance with the terms and conditions of the offer, as described in this prospectus/offer to exchange.

 

Event		Time and/or date
Latest time and date for Cadbury securityholders to accept the offer and end of the initial offer period (unless extended)		8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010
Expected date on which the offer will become or be declared wholly unconditional		February 2, 2010
Payment of consideration to Cadbury securityholders who accept the offer during the initial offer period (the “Settlement Date”)		As soon as practicable after February 2, 2010 and by no later than February 16, 2010
Shares of Kraft Foods common stock to be issued in the offer begin trading on the NYSE		On or about the Settlement Date

 

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QUESTIONS AND ANSWERS ABOUT THE OFFER

This section includes some of the questions that you, as a U.S. or Canadian Cadbury shareholder or as a holder of Cadbury ADSs, may have regarding the offer, along with answers to those questions. This section and the section of this prospectus/offer to exchange entitled “Summary” together provide a summary of the material terms of the offer. These sections highlight selected information from this prospectus/offer to exchange, but do not contain all of the information that may be important to you. To better understand the offer, you should read this entire prospectus/offer to exchange, including the appendices, carefully, as well as those additional documents incorporated by reference or referred to in this prospectus/offer to exchange. You may obtain the information incorporated by reference into this prospectus/offer to exchange by following the instructions in the section of this prospectus/offer to exchange entitled “Incorporation by Reference.”

Page numbers in parentheses refer to other places in this prospectus/offer to exchange that may contain more detailed information regarding the subject matter summarized, and we urge you to read carefully the remainder of this prospectus/offer to exchange and the accompanying Form of Acceptance or ADS Letter of Transmittal, as applicable.

References in this prospectus/offer to exchange to “we,” “us” and “our” refer to Kraft Foods Inc. and, where applicable, its subsidiaries. References in this prospectus/offer to exchange to numbers of days refer to calendar days, unless otherwise indicated.

 

1.	What is Kraft Foods offering to acquire in the offer?

In the offer, we are seeking to acquire all Cadbury ordinary shares, including those represented by Cadbury ADSs.

 

2.	How has Kraft Foods changed the offer?

Under the basic terms of the offer, if you accept the offer you will now receive for each Cadbury ordinary share:

 

•

500 pence in cash; and

 

•

0.1874 shares of Kraft Foods common stock.

As each Cadbury ADS represents four Cadbury ordinary shares, if you accept the offer and elect to receive the basic terms of the offer, you will receive for each Cadbury ADS:

 

•

2,000 pence in cash; and

 

•

0.7496 shares of Kraft Foods common stock.

We will not pay any interest on the payments to which you are entitled under the offer.

If you tender your Cadbury ordinary shares in the offer, you will receive the cash portion of the offer consideration for your Cadbury ordinary shares in pounds sterling, unless you specifically elect to receive U.S. dollars. If you tender your Cadbury ADSs in the offer, you will receive the cash portion of the offer consideration for your Cadbury ADSs in U.S. dollars, unless you specifically elect to receive pounds sterling. Please see Question 10 and the section of this prospectus/offer to exchange entitled “The Offer—Payment of Cash and Stock Consideration—Currency.”

On January 19, 2010, we announced that we reserve the right to, and intend to, reduce the number of acceptances required to fulfill the minimum acceptance condition from 90% to 50% plus one Cadbury ordinary share (i.e., a majority) on or after January 26, 2010. We will further communicate this by placing an advertisement in the Wall Street Journal.

 

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Furthermore, the offer is subject to the condition that our shareholders shall have approved any proposals required under certain rules of the NYSE to approve the issuance of the Kraft Foods common stock in connection with the offer, as revised. However, the terms of the offer do not require the approval of our shareholders. Accordingly, the shareholder approval condition described in paragraph 1 (Conditions of the Offer) of Part A of Appendix A is treated as satisfied for the purposes of the offer.

 

3.	Does the Cadbury board of directors support the offer?

Yes. On January 19, 2010, the Cadbury board of directors made the following recommendation:

“The board of Cadbury, which has been so advised by Goldman Sachs International, Morgan Stanley & Co. Limited and UBS Investment Bank considers the terms of the Final Offer to be fair and reasonable. In providing their financial advice to the board of Cadbury, Goldman Sachs International, Morgan Stanley & Co. Limited and UBS Investment Bank have taken into account the board’s commercial assessments.

Accordingly, the board of Cadbury unanimously recommends Cadbury securityholders to accept the terms of the Final Offer.”

Commenting on the offer, Roger Carr, Chairman of Cadbury, said:

“We believe the offer represents good value for Cadbury shareholders and are pleased with the commitment that Kraft Foods has made to our heritage, values and people throughout the world. We will now work with the Kraft Foods’ management to ensure the continued success and growth of the business for the benefit of our customers, consumers and employees.”

In addition, Cadbury has agreed to pay an inducement fee of £117.7 million, which is approximately 1% of the aggregate value of the offer subject to any adjustment for value added tax (VAT), in the circumstances where a competing offer is announced and either is recommended by Cadbury or that offer or another third party offer becomes unconditional and our offer lapses or is withdrawn, unless, prior to such announcement, Cadbury withdraws its recommendation for reasons demonstrably unrelated to such competing third party offer.

In addition, Cadbury has advised us that Cadbury shareholders will be receiving 10 pence per Cadbury ordinary share by way of a special dividend. This will, in effect, enable Cadbury shareholders to receive 10 pence out of the planned final dividend of 12.3 pence per share previously announced by Cadbury, subject to board and shareholder approval, which would otherwise not become payable.

 

4.	What is the value of the offer as of the date of this prospectus/offer to exchange?

Based on the closing share price of $29.58 per share of Kraft Foods common stock on the NYSE on January 15, 2010, and an exchange rate of $1.63 to £1.00 (as quoted by WM/Reuters on January 18, 2010), the offer has a value of approximately 840 pence per Cadbury ordinary share and $54.77 per Cadbury ADS.

Because the value of the offer depends on the trading price of Kraft Foods common stock and the prevailing dollar to pound sterling currency exchange rate, it is subject to change. We urge you to obtain current market information regarding Kraft Foods common stock and current exchange rate information.

 

5.	How does the offer compare to Cadbury ordinary share prices and Cadbury ADS prices prior to the announcement of the offer?

Based on the closing share price of $29.58 per share of Kraft Foods common stock on the NYSE on January 15, 2010 and an exchange rate of $1.63 per £1.00 (as quoted by WM/Reuters on January 18, 2010) the offer represents a substantial premium to Cadbury’s unaffected share price. This premium is approximately:

 

•

60.5% over the closing middle market price of 524 pence for Cadbury ordinary shares on the LSE on July 3, 2009, the last trading day prior to analyst suggestions regarding potential sector consolidation;

 

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•

58.0% over the closing share price of $34.66 for Cadbury ADSs on the NYSE on July 2, 2009, the last trading day prior to analyst suggestions regarding potential sector consolidation;

 

•

51.3% over the average daily closing middle market price for Cadbury ordinary shares on the LSE during the 90-day period ended on September 4, 2009, the last full trading day before our first public announcement of a possible offer for Cadbury, which was 555 pence per Cadbury ordinary share;

 

•

49.1% over the average daily closing share price for Cadbury ADSs on the NYSE during the 90-day period ended on September 4, 2009, which was $36.74 per Cadbury ADS;

 

•

47.9% over the closing middle market price of 568 pence for Cadbury ordinary shares on the LSE on September 4, 2009; and

 

•

46.2% over the closing share price of $37.46 for Cadbury ADSs on the NYSE on September 4, 2009.

 

6.	Why is Kraft Foods making the offer? (See page 41)

We are making the offer to acquire control of Cadbury. We believe the financial and strategic rationale for the offer is compelling and will provide short- and long-term benefits to Cadbury securityholders who accept the offer. In particular:

 

•

We believe that the offer represents a compelling opportunity for Cadbury securityholders, providing the ability to receive approximately 60% of their consideration in cash and long-term value creation potential through a continued shareholding in the combined company.

 

•

Kraft Foods believes a combination with Cadbury will provide the potential for meaningful cost savings and revenue synergies from which Cadbury securityholders will benefit.

 

•

The combination creates a global leader in the global foods and confectionery sector.

 

•

Kraft Foods believes a combination represents a strong and complementary strategic fit, creating a global confectionery leader with a portfolio of more than 40 confectionery brands each with annual sales in excess of $100 million.

 

•

Kraft Foods and Cadbury have a highly complementary geographic footprint, providing the combined company with a leading presence in attractive global markets.

 

•

The combined company will have a leading position in developing markets, including in Brazil, Russia, India, China, and Mexico.

 

•

The company will benefit from important additional scale in the consolidating confectionery segments.

 

•

The combined company will have best-in-class infrastructure in both traditional and instant consumption routes to market.

As with any investment decision, the anticipated benefits may not be realized. For a discussion of the risk factors that you should consider carefully, please see the section of this prospectus/offer to exchange entitled “Risk Factors.”

 

7.	If I have already accepted the offer do I need to take any action?

No. If you have already validly accepted the offer prior to the date of this prospectus/offer to exchange, you do not have to take any further action.

 

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8.	Why is Kraft Foods communicating the offer to certain Cadbury securityholders under this prospectus/offer to exchange and to other Cadbury securityholders under separate offering documents?

We are communicating the offer under separate offer documentation to satisfy regulatory requirements. All holders of Cadbury ordinary shares who are U.S. holders (within the meaning of Rule 14d-1(d) under the Exchange Act) or residents of Canada and all holders of Cadbury ADSs, wherever located, will receive this prospectus/offer to exchange. All holders of Cadbury ordinary shares who are not U.S. holders or residents of Canada will receive separate offer documents. Cadbury securityholders will only receive the relevant offer documents if they are permitted by law to receive them. The terms of the offer are the same regardless of the offer documentation used.

 

9.	May I request to receive more cash or more Kraft Foods common stock than the basic terms of the offer described above? (See page A-22)

Yes. There is a mix and match facility available to Cadbury securityholders. Under this facility, you may elect to vary the proportions in which you receive Kraft Foods common stock and cash consideration, subject to off-setting elections being made by the other Cadbury securityholders. As such, it might not be possible to satisfy every election under the facility. To the extent that elections cannot be satisfied in full, they will be reduced on a pro rata basis.

To the extent that valid elections under the mix and match facility can be satisfied, Cadbury securityholders will receive Kraft Foods common stock instead of cash due under the offer or vice versa on the basis of a fixed rate of £15.94 in cash for each share of Kraft Foods common stock. The price has been set using the closing share price of Kraft Foods common stock on the NYSE on December 1, 2009, and an exchange rate of $1.6627 to £1.00 (as quoted by WM/Reuters on December 1, 2009).

Valid elections under the mix and match facility received during the initial offer period will be off-set against each other in one off-setting pool. At the time we made the offer on December 4, 2009, we reserved the right to extend the mix and match facility during the subsequent offer period. We have since determined that we will in fact make the mix and match facility available during the subsequent offer period. Assuming the subsequent offer period extends beyond 14 days, there will be multiple settlement dates on which we will settle the consideration for Cadbury ordinary shares, including those represented by Cadbury ADSs, tendered in the subsequent offer period. As a result, there will be separate off-setting pools for Cadbury ordinary shares, including those represented by Cadbury ADSs, tendered in the subsequent offer period and settled together on a particular settlement date. Accordingly, all mix and match calculations in respect of Cadbury securityholders who accept the offer during the subsequent offer period will be made by reference to the number of valid acceptances and elections we receive that are to be settled on each settlement date.

The number of shares of Kraft Foods common stock we will issue and the total cash consideration we will pay in the offer will not change as a result of elections under the mix and match facility.

You are not required to make an election. If you accept the offer and you choose not to make a mix and match election, or if you do not make a valid mix and match election, you will receive the basic terms of the offer. The invalidity of an election under the mix and match facility will not affect the validity of an acceptance of the offer.

The mix and match election procedure is described more fully in paragraph 6 (The Mix and Match Facility) of Part B of Appendix A to this prospectus/offer to exchange and the accompanying Form of Acceptance and ADS Letter of Transmittal. If you wish to make a mix and match election, you should carefully read and comply with the instructions in the accompanying Form of Acceptance or ADS Letter of Transmittal, as applicable.

Please see the section of this prospectus/offer to exchange entitled “Risk Factors—Risk Factors Relating to the Offer—If you elect to use the mix and match facility, you may not receive the consideration in the proportion of Kraft Foods common stock and cash requested.”

 

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10.	In what currency will I receive the cash portion of the offer consideration? (See page 54)

If you tender Cadbury ordinary shares in the offer, you will receive the cash portion of the offer consideration for your Cadbury ordinary shares in pounds sterling, unless you specifically elect to receive it in U.S. dollars. If you tender your Cadbury ADSs in the offer, you will receive the cash portion of the offer consideration for your Cadbury ADSs in U.S. dollars, unless you specifically elect to receive it in pounds sterling.

If you specifically elect to receive the cash portion of your consideration in U.S. dollars, the cash amount payable in pounds sterling to which you would otherwise be entitled pursuant to the offer will be paid (net of all relevant fees and expenses) in U.S. dollars, based on the exchange rate obtainable on the spot market in London on the date the cash consideration is made available by Kraft Foods to Computershare Investor Services PLC (the “Ordinary Share Exchange Agent”) or Computershare Trust Company, N.A. (the “ADS Exchange Agent”) for delivery in respect of your Cadbury ordinary shares or Cadbury ADSs.

 

11.	How will I receive the share portion of the offer consideration?

The manner in which you will receive any shares of Kraft Foods common stock that you are entitled to receive in the offer will vary depending on a number of factors, including whether you hold Cadbury ordinary shares or Cadbury ADSs, whether you possess physical certificates or hold your Cadbury ordinary shares, including those represented by Cadbury ADSs, in uncertificated or book-entry form and whether you hold them through an intermediary, such as a stockbroker, custodian bank or clearing system. We will not issue actual stock certificates.

 

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If you hold Cadbury ordinary shares or Cadbury ADSs in certificated form, a book-entry account statement reflecting your ownership of shares of Kraft Foods common stock will be mailed to you.

 

•

If you hold your Cadbury ordinary shares in uncertificated form (that is, in CREST, the U.K. paperless settlement system) you will receive CREST Depository Interests, or CDIs, representing entitlements to your shares of Kraft Foods common stock, which will be credited to your CREST account. CDIs are depository interests in non-U.K. securities, in this case, shares of Kraft Foods common stock. The CDIs will be treated as shares of Kraft Foods common stock for the purposes of determining, for example, eligibility for any dividends. We intend to establish, in accordance with applicable law and to the extent possible, arrangements under which holders of CDIs will be able to receive notices of shareholder meetings, annual reports and any other documents we send to our shareholders. In addition, we intend to establish arrangements under which holders of CDIs will be able to give voting directions at meetings of our shareholders in a generally equivalent way to the holders of Kraft Foods common stock. Further details of the CDIs are set forth in the section of this prospectus/offer to exchange entitled “Description of Kraft Foods Capital Stock—Information on CREST Depository Interests.” Except where the context otherwise requires, references in this prospectus/offer to exchange to Kraft Foods common stock include, where applicable, the CDIs.

 

•

If you hold your Cadbury ADSs through an intermediary in book-entry form (that is, you hold your Cadbury ADSs in a brokerage or custodian account and through a clearing system), your brokerage account will be credited for the shares of Kraft Foods common stock.

 

12.	How long will the offer remain open? (See page A-13)

Unless we extend the offer, the offer will expire at 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010.

 

13.	What is the “minimum acceptance condition”? (See page A-1)

The minimum acceptance condition initially required that holders of at least 90% of the outstanding Cadbury ordinary shares, including those represented by Cadbury ADSs, validly accept the offer. On January 19, 2010, we

 

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announced that we reserve the right to, and intend to, reduce the number of acceptances required to fulfill the minimum acceptance condition from 90% to 50% plus one Cadbury ordinary share (i.e., a majority) on or after January 26, 2010. We will further communicate this by placing an advertisement in the Wall Street Journal. If you have already accepted the offer, but your willingness to accept the offer would be affected by the reduction of the minimum acceptance condition, you may wish to consider withdrawing your acceptance with respect to such Cadbury ordinary shares, including those represented by Cadbury ADSs, from the offer.

With the consent of the U.K. Panel on Takeovers and Mergers (the “U.K. Takeover Panel”), in determining whether the minimum acceptance condition has been satisfied, we may be permitted to exclude certain Cadbury ordinary shares issued after the time agreed with the U.K. Takeover Panel and prior to the expiration of the initial offer period.

 

14.	What does it mean for the offer to become or be declared “wholly unconditional”?

The offer will become or be declared wholly unconditional when all of the conditions of the offer described in paragraph 1 (Conditions of the Offer) of Part A of Appendix A to this prospectus/offer to exchange have been satisfied or waived by us. The minimum acceptance condition cannot become or be declared satisfied until all of the other conditions have been satisfied, fulfilled or to the extent permitted, waived. We cannot acquire your Cadbury ordinary shares, including those represented by Cadbury ADSs, pursuant to the offer until the offer becomes or is declared wholly unconditional. You will not have withdrawal rights after the offer becomes or is declared wholly unconditional except in certain limited circumstances (for example, if we have failed to make certain announcements required by the U.K. City Code on Takeovers and Mergers (the “U.K. Takeover Code”) or if we withdraw an announcement that the offer will not be increased or further extended after a particular date). These circumstances are described in paragraph 4 (Rights of Withdrawal) of Part B of Appendix A to this prospectus/offer to exchange.

 

15.	What is the last day the offer could become or be declared wholly unconditional? (See page A-13)

If the conditions of the offer have not been satisfied or waived by us by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010 (or such earlier time or date that we state), the offer will lapse. We may extend the offer beyond this time if:

 

•

a competing bid has been made for Cadbury; or

 

•

the U.K. Takeover Code permits; or

 

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the U.K. Takeover Panel agrees,

and we comply with the applicable U.S. tender offer rules. If we do not complete the offer, we will not purchase your Cadbury ordinary shares, including those represented by Cadbury ADSs, and we will return any Cadbury ordinary shares or Cadbury ADSs you tender.

 

16.	How will Kraft Foods let me know if it extends the initial offer period or if the offer has become or is declared wholly unconditional? (See page A-16)

If we extend the initial offer period, we will issue a press release on, among others, PR Newswire, by 3:00 a.m. New York City time (8:00 a.m. London time) on the following U.S. business day or U.K. business day (whichever is earlier), or at such later time or date as the U.K. Takeover Panel agrees and in accordance with U.S. tender offer rules. This announcement will include the new expiration date and time of the initial offer period. It will also inform you that you may tender, or withdraw your tendered, Cadbury ordinary shares and Cadbury ADSs, at any time until this expiration time and date, unless the offer becomes or is declared wholly unconditional prior to this time and date.

If the offer becomes or is declared wholly unconditional prior to February 2, 2010, we will issue a press release on, among others, PR Newswire, by 3:00 a.m. New York City time (8:00 a.m. London time) on the

 

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following U.S. business day or U.K. business day (whichever is earlier), or at a later time or date that the U.K. Takeover Panel agrees and in accordance with U.S. tender offer rules. If the offer becomes or is declared wholly unconditional on February 2, 2010, we will issue a press release on, among others, PR Newswire, by 12:00 p.m. New York City time (5:00 p.m. London time) on the following U.S. business day or U.K. business day (whichever is earlier), or at a later time or date that the U.K. Takeover Panel agrees and in accordance with U.S. tender offer rules. This announcement will also state that the initial offer period has closed and that a subsequent offer period has commenced.

We will also post these announcements on our web site at www.transactioninfo.com/kraftfoods.

 

17.	Will there be a subsequent offer period?

If the offer becomes or is declared wholly unconditional, a subsequent offer period will start immediately. The subsequent offer period will be open for at least 14 days. We may extend the subsequent offer period until a later specified date or until further notice.

 

18.	What is the difference between the initial offer period and the subsequent offer period?

The initial offer period is the period during which the offer remains conditional, which commenced on December 4, 2009 and expires on the earliest of (a) the offer lapsing, (b) the offer becoming or being declared wholly unconditional in accordance with its terms and (c) 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010 or such later time and date as agreed with the U.K. Takeover Panel and in accordance with U.S. tender offer rules. If the offer has not become or been declared wholly unconditional by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time and date as we may extend the initial offer period, and we do not further extend the initial offer period, the offer will lapse.

You will have withdrawal rights throughout the initial offer period. You will not have withdrawal rights in the subsequent offer period except in certain limited circumstances (for example, if we have failed to make certain announcements required by the U.K. Takeover Code or if we withdraw an announcement that the offer will not be increased or further extended after a particular date). These circumstances are described in paragraph 4 (Rights of Withdrawal) of Part B of Appendix A to this prospectus/offer to exchange.

 

19.	Will I receive the same consideration if I accept the offer during the subsequent offer period?

Yes. However, because the exchange ratio is fixed, the market value of each share of Kraft Foods common stock you receive in the subsequent offer period may be more or less than the market value at the time the initial offer period ends. Furthermore, as described in Question 9, there will be separate off-setting pools for Cadbury ordinary shares, including those represented by Cadbury ADSs, tendered in the subsequent offer period and settled together on a particular settlement date. Accordingly, all mix and match calculations in respect of Cadbury securityholders who accept the offer during the subsequent offer period will be made by reference to the number of valid acceptances and elections we receive that are to be settled on each settlement date. As a result, Cadbury securityholders who tender their Cadbury ordinary shares or Cadbury ADSs during the subsequent offer period and elect for more cash or more shares of Kraft Foods common stock under the mix and match facility may receive a different proportion of their preferred consideration than those who accept during the initial offer period or those who accept earlier or later during the subsequent offer period.

 

20.	How do I accept the offer? (See page 47)

You may accept the offer as follows:

 

•

If you hold your Cadbury ordinary shares in certificated form. To accept the offer, you must complete the Form of Acceptance in accordance with the instructions on it as soon as possible. These

 

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documents must be received by the Ordinary Share Exchange Agent at the address listed in the Form of Acceptance or on the back cover of this prospectus/offer to exchange, by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time and date to which the offer may be extended.

 

•

If you hold your Cadbury ordinary shares in uncertificated form. To accept the offer, you must take (or cause the taking of) the action set out below to transfer the Cadbury ordinary shares in respect of which you wish to accept the offer to the appropriate escrow balance(s), specifying the Ordinary Share Exchange Agent as the escrow agent as soon as possible. In any event, the TTE Instruction must settle by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time or date to which the offer may be extended. The input and settlement of a TTE Instruction will (subject to satisfying the requirements set out in Part B (Further Terms of the Offer) and Part D (Electronic Acceptance for Cadbury ordinary shares in uncertificated form) of Appendix A to this prospectus/offer to exchange) constitute an acceptance of the offer in respect of the number of Cadbury ordinary shares so transferred to escrow. If you are a CREST sponsored member, you should refer to your CREST sponsor before taking any action. Only your CREST sponsor will be able to send the required TTE Instruction to Euroclear in relation to your Cadbury ordinary shares.

 

•

If you hold your Cadbury ADSs in certificated form (that is, you hold one or more Cadbury American Depositary Receipts (ADRs)). To accept the offer, you should complete, sign and send the ADS Letter of Transmittal (or a manually signed facsimile thereof) with any required signature guarantees, together with your Cadbury ADRs and any other documents required by the ADS Letter of Transmittal, to the ADS Exchange Agent at the address listed on the back cover of this prospectus/offer to exchange as soon as possible. The ADS Exchange Agent must receive these documents by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time or date to which the offer may be extended.

 

•

If you hold your Cadbury ADSs in direct registered (DRS) form. To accept the offer, you should convert your direct registration Cadbury ADSs into certificated Cadbury ADSs and follow the acceptance procedures for certificated Cadbury ADSs (or Cadbury ADRs) described above as soon as possible and, in any event, so as to be received by the ADS Exchange Agent at the address listed on the back cover of this prospectus/offer to exchange by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time or date to which the offer may be extended. Alternatively, you should arrange for your direct registration Cadbury ADSs to be transferred to a brokerage or custodian account and follow the instructions for acceptance provided by your broker or other institution as soon as possible and, in any event, by the deadline set by your broker or other institution. The conversion of direct registration Cadbury ADSs into certificated Cadbury ADSs and the transfer of direct registration Cadbury ADSs to a brokerage or custodian account may be subject to processing delays. Cadbury ADS holders transferring DRS Cadbury ADSs to a brokerage or custodian account may also incur fees charged by JPMorgan Chase Bank, N.A. or its successor, as Depositary for the Cadbury ADSs (the “ADS Depositary”) pursuant to the ADS deposit agreement or by their broker or custodian. You are encouraged to inquire with the ADS Depositary and your broker or custodian regarding the amount and applicability of any such fees. JPMorgan Chase Bank, N.A. can be reached directly at (800) 990-1135, or, from outside the United States at (651) 453-2128, or, by contacting Global Invest Direct at (800) 428-4237.

 

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If you hold your Cadbury ordinary shares or Cadbury ADSs through one or more intermediaries, such as a stockbroker, custodian bank or clearing system. You should accept the offer by following the instructions that your applicable intermediary has established to accept the offer on your behalf. The custodian bank or stockbroker may set an earlier deadline for receiving instructions from Cadbury securityholders in order to permit the custodian bank or stockbroker to communicate acceptances to the Ordinary Share Exchange Agent or the ADS Exchange Agent in a timely manner. In order for your acceptance to count toward the minimum acceptance condition, you may have to act prior to the announced deadline for acceptance.

 

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Please see the section of this prospectus/offer to exchange entitled “The Offer—Procedures for Accepting the Offer” for a detailed description of the procedures for accepting the offer.

 

21.	When will I receive the offer consideration for my tendered Cadbury ordinary shares or Cadbury ADSs? (See page 54)

The timing of payment of the offer consideration will be consistent with U.K. practice, which differs from U.S. domestic tender offer procedures. If you accept the offer during the initial offer period and the offer becomes or is declared wholly unconditional, you will receive your consideration within 14 days after the end of the initial offer period. If you accept during the subsequent offer period, you will receive your consideration within 14 days after we receive your valid acceptance.

 

22.	Will I receive fractional shares of Kraft Foods common stock?

No. We will not allot or issue fractional shares of Kraft Foods common stock to Cadbury securityholders who accept the offer (including such holders who are deemed to accept the offer). To the extent that you would be entitled to fractional shares, those fractional entitlements will be aggregated and sold in the market and the net proceeds of such sale (following conversion from U.S. dollars to pounds sterling, if applicable) distributed pro rata to the Cadbury securityholders entitled to them.

 

23.	Will I have to pay any brokerage commissions or transaction fees?

If you tender your Cadbury ADSs in the offer, and the offer becomes or is declared wholly unconditional, the ADS Exchange Agent, as your representative, will, upon the request of Kraft Foods, instruct the ADS Depositary on your behalf to withdraw the Cadbury ordinary shares represented by your tendered Cadbury ADSs and to deliver those Cadbury ordinary shares to the account or accounts designated by the ADS Exchange Agent. At such time, the ADS Depositary will assess you a withdrawal fee of $0.05 per Cadbury ADS. This fee will be deducted from the cash consideration payable to you. If you elect to receive additional shares of Kraft Foods common stock under the mix and match facility and, as a result, the cash consideration otherwise payable to you is not sufficient to cover this fee, your mix and match election will be adjusted to the extent necessary such that the cash consideration payable to you is sufficient to cover the amount of the fee. If the offer lapses or does not become or is not declared wholly unconditional, you will not be assessed any such fee.

If you are the record owner of your Cadbury ordinary shares or Cadbury ADSs, you will not have to pay any brokerage fees or similar expenses (other than the withdrawal fee of $0.05 per Cadbury ADS described above, if applicable) to accept the offer. If you hold your Cadbury ordinary shares or Cadbury ADSs through an intermediary such as a stockbroker, custodian bank or other nominee, and the intermediary accepts the offer on your behalf, the intermediary may charge you a fee for doing so. You should consult your stockbroker, custodian bank or nominee to determine whether any charges will apply. We will reimburse brokers, dealers, commercial banks and trust companies and other nominees, upon request, for customary clerical and mailing expenses incurred by them in forwarding offering materials to their customers.

 

24.	After I accept the offer, may I change my mind and withdraw my acceptance? (See page A-17)

You may withdraw your acceptance of the offer at any time until 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, unless we extend the initial offer period. If we extend the initial offer period, you may withdraw your acceptance of the offer at any time prior to the new expiration time and date or until the offer becomes or is declared wholly unconditional, whichever is earlier.

In order to withdraw your Cadbury ordinary shares or Cadbury ADSs once you have accepted the offer, you must generally provide a written notice of withdrawal and follow the procedures set forth in paragraph 4 (Rights of Withdrawal) of Part B of Appendix A to this prospectus/offer to exchange while you still have the right to withdraw your acceptance.

 

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You will generally not be able to withdraw previously tendered Cadbury ordinary shares, including those represented by Cadbury ADSs, during the subsequent offer period. For more information on the circumstances in which you will have withdrawal rights in the subsequent offer period, please see paragraph 4 (Rights of Withdrawal) of Part B of Appendix A to this prospectus/offer to exchange.

 

25.	Will I be taxed on the Kraft Foods common stock and cash that I receive? (See page 55)

Yes. Your receipt of Kraft Foods common stock and cash, whether paid in pounds sterling or U.S. dollars, will be a taxable exchange for U.S. federal income tax purposes. For more information on the material U.S. federal income tax consequences of the offer, please see the section of this prospectus/offer to exchange entitled “The Offer—Certain Material U.S. Federal Income and Estate Tax Consequences.”

WE URGE YOU TO CONTACT YOUR OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO YOU OF THE OFFER.

 

26.	May I accept the offer with respect to my Cadbury share options?

If you hold exercisable Cadbury share options and you would like to participate in the offer, you must first exercise the options and then tender the underlying Cadbury ordinary shares in accordance with the terms of the offer. The Cadbury ordinary shares received as a result of exercising Cadbury share options will be subject to the offer (provided they are issued prior to the expiration of the offer, or such later date and/or time as we may, with the consent of the U.K. Takeover Panel, determine).

 

27.	What will happen to my Cadbury share options if the offer becomes or is declared wholly unconditional?

We will make appropriate proposals to holders of Cadbury ordinary share options in due course.

 

28.	Will the offer be followed by a compulsory acquisition?

If the offer becomes or is declared wholly unconditional and we acquire 90% or more of the Cadbury ordinary shares, including those represented by Cadbury ADSs, during the initial offer period and the subsequent offer period, we intend to acquire any outstanding Cadbury ordinary shares, including those represented by Cadbury ADSs, through a “compulsory acquisition procedure” under the United Kingdom Companies Act 2006, as amended (the “U.K. Companies Act”). In a compulsory acquisition, Cadbury securityholders who do not accept the offer will receive the same consideration received by any accepting Cadbury securityholder in the offer, which includes the opportunity to elect, subject to availability, to participate in a mix and match facility. If we do not achieve the 90% threshold, the compulsory acquisition procedure will not be available. However, the Cadbury ordinary shares may still be delisted as described in Question 30 below. Please see the section of this prospectus/offer to exchange entitled “Risk Factors—Risk Factors Relating to the Offer—Failure to acquire 100% of the Cadbury ordinary shares, including Cadbury ADSs, may affect our ability to complete any post-closing restructuring of Cadbury and its subsidiaries. This could reduce or delay the cost savings or revenue benefits to the combined company.”

 

29.	Will I have dissenters’ or appraisal rights in the offer? (See page 60)

No dissenters’ or appraisal rights are available in connection with the offer. However, in the event that we implement the compulsory acquisition procedures described in Question 28, Cadbury shareholders who have not participated in the offer and whose Cadbury ordinary shares are to be compulsorily acquired will have certain rights under the U.K. Companies Act to object to the U.K. court to Kraft Foods compulsorily acquiring their Cadbury ordinary shares.

 

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30.	If I decide not to accept the offer, how will the offer affect my Cadbury ordinary shares or Cadbury ADSs? (See page 61)

If we complete the offer, but we do not acquire your Cadbury ordinary shares, including those represented by your Cadbury ADSs, under the compulsory acquisition procedures described in Question 28, you will remain a Cadbury shareholder or a holder of Cadbury ADSs (unless we terminate Cadbury’s ADS program, in which case you will be a Cadbury shareholder), and will, therefore, become a minority shareholder in a subsidiary of Kraft Foods. If we do not complete the offer, your status as a Cadbury shareholder or holder of Cadbury ADSs will not be affected.

If we acquire 75% of the voting rights of Cadbury, we intend to cause Cadbury to apply for cancellation of the listing of the Cadbury ordinary shares on the Official List maintained by the United Kingdom Financial Services Authority (the “U.K. Official List”) and the trading of the Cadbury ordinary shares on the LSE’s main market for listed securities. If we complete the offer, we intend, subject to the rules of the NYSE, to cause Cadbury to apply for the delisting of the Cadbury ADSs from the NYSE and terminate Cadbury’s ADS program. We may also seek to have Cadbury terminate the registration of the Cadbury ordinary shares and the Cadbury ADSs under the Exchange Act. This would substantially reduce the information Cadbury is required to furnish to shareholders and to the SEC and would also make certain provisions of the Exchange Act no longer applicable to Cadbury. Please see the section of this prospectus/offer to exchange entitled “The Offer—Certain Effects of the Offer.”

 

31.	Does Kraft Foods have the financial resources to complete the transactions contemplated by the offer? (See page 62)

Yes. We expect to use the borrowings from the bridge facility described in the section of this prospectus/offer to exchange entitled “The Offer—Financing of the Offer; Source and Amount of Funds,” to finance the acquisition of Cadbury pursuant to the offer and to refinance certain indebtedness of Cadbury and its subsidiaries to the extent that the cash consideration under the offer is not funded from our own resources and/or alternative funding sources.

 

32.	Is Kraft Foods’ financial condition relevant to my decision to accept the offer?

Yes. Because we will issue shares of Kraft Foods common stock to Cadbury securityholders who accept the offer (subject to elections under the mix and match facility), you should consider our financial condition before you decide to accept the offer. You also should consider the possible effect that our acquisition of Cadbury will have on our financial condition. For a discussion of the possible impact of the offer and any compulsory acquisition on our financial condition, please see the sections of this prospectus/offer to exchange entitled “Risk Factors—Risk Factors Relating to the Offer.”

 

33.	Does Kraft Foods or any of its respective directors or executive officers own any Cadbury ordinary shares or Cadbury ADSs?

No, neither Kraft Foods nor any of our directors or executive officers beneficially own any Cadbury ordinary shares or Cadbury ADSs.

 

34.	Where can I find more information on Kraft Foods and Cadbury? (See page 99)

You can find more information about Kraft Foods and Cadbury from various sources described in the section of this prospectus/offer to exchange entitled “Where You Can Find More Information.”

 

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35.	Who can I talk to if I have questions about the offer?

You can call the information agent for the offer Monday through Friday between 9:00 a.m. and 11:00 p.m. New York City time or between 10:00 a.m. and 4:00 p.m. New York City time on Saturday at the numbers listed below.

The information agent for the offer is:

199 Water Street, 26^th Floor

New York, NY 10038-3560

Banks and Brokers Call (212) 440-9800

Toll-Free in the United States (800) 868-1391

Outside the United States (212) 806-6859

 

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RISK FACTORS

By accepting the offer, Cadbury securityholders will be choosing to invest in Kraft Foods common stock. In considering whether to accept the offer, you should consider carefully the following risk factors, and the other risks and information contained in this prospectus/offer to exchange and in documents incorporated herein by reference. Please see the section of this prospectus/offer to exchange entitled “Where You Can Find More Information” for information on where you can find additional risk factors and other information incorporated by reference in this prospectus/offer to exchange.

Risk Factors Relating to Our Business and the Business of the Combined Company

We operate in a highly competitive industry, which may affect our profitability.

The food industry is highly competitive. We compete based on price, product innovation, product quality, brand recognition and loyalty, effectiveness of marketing, promotional activity and the ability to identify and satisfy consumer preferences.

From time to time, we may need to reduce our prices in response to competitive and customer pressures and to maintain our market share. Competition and customer pressures may also restrict our ability to increase prices in response to commodity and other input cost increases. Our results of operations will suffer if profit margins decrease, as a result of a reduction in prices, increased input costs or other factors, and if we are unable to increase sales volumes to offset those profit margin decreases.

Retailers are increasingly offering retailer brands that compete with some of our products. It is important that our products provide higher value and/or quality to our consumers than less expensive alternatives. If the difference in value or quality between our products and those of retailer brands narrows, or if such difference in quality is perceived to have narrowed, then consumers may not buy our products. Furthermore, during periods of economic uncertainty, such as have been experienced in the recent past and may be experienced in the future, consumers tend to purchase more retailer brands or other economy brands, which could reduce sales volumes of our products or shift our product mix to our lower margin offerings. If we are not able to maintain or improve our brand image or value proposition, it could have a material effect on our market share and our profitability.

We may also need to increase spending on marketing, advertising and new product innovation to protect existing market share or increase market share. The success of our investments is subject to risks, including uncertainties about trade and consumer acceptance. As a result, our increased expenditures may not maintain or enhance market share and could result in lower profitability.

The consolidation of retail customers, the loss of a significant customer or a material reduction in sales to a significant customer could affect our operating margins, our profitability, our sales and our results of operations.

Retail customers, such as supermarkets, warehouse clubs and food distributors in the United States, the European Union and our other major markets, continue to consolidate. These consolidations have produced large, sophisticated customers with increased buying power. These larger retailers, capable of operating with reduced inventories, can resist price increases and demand lower pricing, increased promotional programs and specifically tailored products. They also may use shelf space currently used for our products for their own retailer brands. The consolidation of retail customers also increases the risk that a severe adverse impact on their business operations could have a corresponding material adverse effect on us. Also, our retail customers may be affected by recent economic conditions. For example, they may not have access to funds or financing and that could cause them to delay, decrease or cancel purchases of our products, or to not pay us or to delay paying us for previous purchases.

 

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During 2008, our five largest customers accounted for approximately 27% of our net revenues, with our largest customer, Wal-Mart Stores, Inc., accounting for approximately 16% of our net revenues. There can be no assurance that all significant customers will continue to purchase our products in the same quantities that they have in the past. The loss of any one of our significant customers or a material reduction in sales to a significant customer could have a material adverse effect on our sales and results of operations.

Increased price volatility for commodities we purchase may affect our profitability.

We are a major purchaser of commodities, including dairy, coffee, cocoa, wheat, corn products, soybean and vegetable oils, nuts, meat products, and sugar and other sweeteners. We also use significant quantities of plastic, glass and cardboard to package our products, and natural gas for our factories and warehouses. Price volatility for commodities we purchase has increased due to conditions outside of our control, including recent economic conditions, currency fluctuations, availability of supply, weather, consumer demand and changes in governmental agricultural programs. Although we monitor our exposure to commodity prices as an integral part of our overall risk management program, continued volatility in the prices of commodities we purchase could increase the costs of our products and services, and our profitability could suffer.

Our product sales depend on our ability to predict, identify and interpret changes in consumer preferences and demand, and on our ability to develop and offer new products rapidly enough to meet those changes.

Consumer preferences for food products change continually. Our success depends on our ability to predict, identify and interpret the tastes and dietary habits of consumers and to offer products that appeal to those preferences.

If we do not succeed in offering products that appeal to consumers, our sales and market share will decrease, and our profitability could suffer. We must be able to distinguish among short-term fads, mid-term trends and long-term changes in consumer preferences. If we are unable accurately to predict which shifts in consumer preferences will be long-term, or if we fail to introduce new and improved products to satisfy those preferences, our sales could decline. In addition, because of our varied consumer base, we must offer a sufficient array of products to satisfy the broad spectrum of consumer preferences. If we fail to expand our product offerings successfully across product categories or if we do not rapidly develop products in faster growing and more profitable categories, demand for our products will decrease and our profitability could suffer.

Prolonged negative perceptions concerning the health implications of certain food products could influence consumer preferences and acceptance of some of our products and marketing programs. For example, recently, consumers have been increasingly focused on health and wellness, including weight management and sodium consumption. Although we strive to respond to consumer preferences and social expectations, we may not be successful in these efforts. Continued negative perceptions and failure to satisfy consumer preferences could decrease demand for our products and adversely affect our profitability.

Legal claims or other regulatory enforcement actions could affect our sales, reputation and profitability.

As a large food company that operates in a highly regulated, highly competitive environment with growing retailer power and a constantly evolving legal and regulatory framework around the world, we are subject to heightened risk of legal claims or other regulatory enforcement actions. Legal claims or regulatory enforcement actions arising out of our failure or alleged failure to comply with applicable laws and regulations could adversely affect our sales, reputation and profitability.

Further, selling products for human consumption involves inherent risks. We could be required to recall products due to product contamination, spoilage or other adulteration, product misbranding or product tampering.

 

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We may also suffer losses if our products or operations violate applicable laws or regulations, or if our products cause injury, illness or death. In addition, our marketing could be the target of claims of false or deceptive advertising or other criticism. A significant product liability or other legal judgment or a related regulatory enforcement action against us, or a widespread product recall, may adversely affect our profitability. Moreover, even if a product liability or consumer fraud claim is unsuccessful, has no merit or is not pursued, the negative publicity surrounding assertions against our products or processes could adversely affect our sales, reputation and profitability.

Increased regulation could increase our costs and affect our profitability.

Food production and marketing are highly regulated by a variety of federal, state, local and foreign agencies. New regulations and changes to existing regulations are issued regularly. Increased governmental regulation of the food industry, such as proposed requirements designed to enhance food safety or to regulate imported ingredients, could increase our costs and adversely affect our profitability.

As a multinational corporation, our operations are subject to additional risks.

We generated approximately half of our 2008 sales, 43% of our 2007 sales and 40% of our 2006 sales outside the United States. If the offer is successful, the percentage of the combined company’s sales generated outside of the United States will increase. With operations in over 70 countries, our operations are subject to risks inherent in multinational operations, including:

 

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fluctuations in currency values,

 

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unpredictability of foreign currency exchange controls,

 

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discriminatory fiscal policies,

 

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compliance with a variety of local regulations and laws,

 

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changes in tax laws and the interpretation of such laws,

 

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difficulties enforcing intellectual property and contractual rights in certain jurisdictions, and

 

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greater risk of uncollectible accounts and longer collection cycles.

In addition, certain jurisdictions could impose tariffs, quotas, trade barriers, and other similar restrictions on our sales. Moreover, our business operations could be interrupted and negatively affected by economic changes, geopolitical regional conflicts, terrorist activity, political unrest, civil strife, acts of war, and other economic or political uncertainties. All of these risks could result in increased costs or decreased revenues, either of which could adversely affect our profitability.

If we are unable to expand our operations in certain emerging markets, our growth rate could be negatively affected.

In 2007, we unveiled our strategies to grow our operations with increased focus on emerging markets, especially Brazil, Russia, China and other regions of Southeast Asia. The success of our operations depends in part on our ability to grow our business in these and other emerging markets. In some cases, emerging markets have greater political and economic volatility and greater vulnerability to infrastructure and labor disruptions. In addition, emerging markets are becoming more competitive as other companies grow globally and local, low cost manufacturers expand their production capacities. If we are unable to increase our business in emerging markets, our market share and profitability could be adversely affected.

 

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We may not be able to consummate proposed acquisitions or divestitures successfully or integrate acquired businesses successfully.

From time to time, we may evaluate additional acquisition candidates in the future that would strategically fit our business objectives. If we are unable to complete acquisitions, or integrate successfully and develop these businesses to realize revenue growth and cost savings, our financial results could be adversely affected. In addition, from time to time, we divest businesses that do not meet our strategic objectives, or do not meet our growth or profitability targets. Our profitability may be affected by either gains or losses on the sales of, or lost operating income from those businesses. Also, we may not be able to complete desired or proposed divestitures on terms favorable to us. Moreover, we may incur asset impairment charges related to acquisitions or divestitures, which may reduce our profitability. Finally, our acquisition or divestiture activities may present financial, managerial and operational risks, including diversion of management attention from existing core businesses, difficulties integrating or separating personnel and financial and other systems, adverse effects on existing business relationships with suppliers and customers, inaccurate estimates of fair value made in the accounting for acquisitions and amortization of acquired intangible assets which would reduce future reported earnings, potential loss of customers or key employees of acquired businesses, and indemnities and potential disputes with the buyers or sellers. Any of these activities could affect our product sales, financial condition and results of operations.

For information on other risks that relate to the offer, please see the section of this prospectus/offer to exchange entitled “—Risk Factors Relating to the Offer.”

Business process improvement initiatives to harmonize our systems and processes may fail to operate as designed and intended.

We regularly implement business process improvement initiatives to harmonize our systems and processes and to optimize our performance. Our current business process initiatives include, but are not limited to, our reorganization of our European operations, the delivery of a SAP enterprise resource planning application, and the outsourcing of certain administrative functions. If our business process improvement initiatives fail, our ability to improve existing operations, achieve anticipated cost savings and support future growth could be delayed.

Changes in our credit ratings and the effects of volatile economic conditions on the credit market could adversely affect our borrowing costs and liquidity.

Our credit ratings depend generally on the amount of our debt and our ability to service our debt. A downgrade in our credit ratings, including as a result of incurring additional debt, would, and disruptions in the commercial paper market or the effects of other volatile economic conditions on the credit market could, reduce the amount of commercial paper that we could issue, and could raise our borrowing costs for both short-term and long-term debt offerings.

Volatility in the equity markets or interest rates could substantially increase our pension costs and have a negative impact on our operating results and profitability.

At the end of 2008, the projected benefit obligation of our defined benefit pension plans was $9.3 billion and assets were $7.0 billion. The difference between plan obligations and assets, or the funded status of the plans, significantly affects the net periodic benefit costs of our pension plans and the ongoing funding requirements of those plans. Among other factors, changes in interest rates, mortality rates, early retirement rates, investment returns and the market value of plan assets can (a) affect the level of plan funding, (b) cause volatility in the net periodic pension cost and (c) increase our future funding requirements. In addition, if we divest certain businesses, we may be required to increase future contributions to the benefit plans and the related net periodic pension cost could increase.

 

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We expect to make approximately $410 million in contributions to our pension plans in 2009, which is approximately $190 million more than we made in 2008. We also expect that our net pension cost will increase by approximately $175 million to approximately $415 million in 2009. Volatile economic conditions increase the risk that we may be required to make additional cash contributions to the pension plans and recognize further increases in our net pension cost beyond 2009.

Cadbury operates occupational defined benefit pension schemes and the combined company may be required to fund an increase in the cost of future benefits and/or meet funding shortfalls in respect of these schemes.

According to its publicly available information, Cadbury has various pension schemes throughout the world and these cover a significant proportion of its current employees. The principal schemes are of the funded defined benefit type, with benefits accruing based on salary and length of service. The net retirement benefit obligation, recognized in the balance sheet at June 30, 2009 was £482 million versus £258 million at December 31, 2008. The actuarial loss on post retirement benefit obligations for the six months ended June 30, 2009 was £254 million (£190 million net of tax) and £388 million (£291 million net of tax) for the 12 months ended December 31, 2008. Regular assessments are carried out by independent actuaries and the long-term contribution rates decided on the basis of their guidance after discussions with trustees and the plan sponsor. According to Cadbury’s Annual Report on Form 20-F for the year ended December 31, 2008, which has been filed by Cadbury with the SEC and which is also incorporated by reference into this prospectus/offer to exchange, Cadbury expects to contribute approximately £56 million to its defined benefit schemes in 2009, with additional scheduled recovery contributions of approximately £4 million in 2009 to further fund its defined benefit obligation in the United Kingdom. For more information on the funding status of these plans, please refer to Cadbury’s unaudited financial statements for the six months ended June 30, 2009 included in Cadbury’s Report on Form 6-K filed with the SEC on July 29, 2009 and note 25 in Cadbury’s audited consolidated financial statements for the year ended December 31, 2008 included in Cadbury’s Annual Report on Form 20-F for the year ended December 31, 2008, both of which are incorporated by reference into this prospectus/offer to exchange.

Because we have not had due diligence access to Cadbury or its business or management for the purposes of preparing this prospectus/offer to exchange, we do not have enough information to assess the extent to which Cadbury’s defined benefit pension schemes are adequately funded in relation to benefits accrued to date, or whether costs for benefits accruing in the future are likely to increase materially from previous experience. Increases in the value of the liabilities of the defined benefit pension schemes and/or a reduction in the value of the assets supporting funded schemes can lead to a need to record increased deficits in the balance sheet. An increase in the value of the net liabilities of such schemes may negatively affect the combined company’s balance sheet and distributable reserves, which could have a material adverse effect on the combined company’s business, operating or financial results or financial position. Further demands for materially increased contributions from Cadbury employers to meet past service deficits or future service costs would impact the cash flows of the combined company.

There may also be pension arrangements or “pension-like” programs in relation to Cadbury’s non-U.K. employees that are not reflected in Cadbury’s financial statements, such as mandatory termination indemnities in favor of Cadbury employees or U.S. industry based multi-employer pension programs in which Cadbury employees participate. Because we have only had very limited access to Cadbury’s non-public business or financial information, we do not have the information to assess whether any such programs or arrangements exist, and, if so, whether the combined company could have significant obligations under these programs or arrangements.

In relation to Cadbury’s U.K. pension arrangements, the Cadbury Pension Fund is a funded defined benefit pension scheme, which according to Cadbury’s Annual Report on Form 20-F for the year ended December 31, 2008, which has been filed by Cadbury with the SEC and which is also incorporated by reference into this

 

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prospectus/offer to exchange, represents about 65% of Cadbury and its subsidiaries’ post retirement liabilities. Its assets are held by trustees separate from the assets of Cadbury. U.K. pension law requires employers to pay periodic contributions and lump sums to these types of pension schemes.

While the Cadbury Pension Fund is ongoing (as opposed to if the Cadbury Pension Fund is wound up, which is described below) contributions are paid by employers over time to meet the cost of future service benefits and any past service deficits. Because we do not have access to the trust deed and rules of the Cadbury Pension Fund, we do not know whether the contributions to be paid are set by agreement between the employer and trustees or by the trustees alone. U.K. law requires a degree of prudence in the calculation process used to set the level of contributions and depending on the situation, at the next valuation date, there could be a material increase in the cash demands placed on Cadbury and its subsidiaries who are employers for the purposes of the Cadbury Pension Fund, which may have a material adverse effect on the combined company’s business, operating or financial results or financial position.

If the Cadbury Pension Fund trustees have the power to wind up the Cadbury Pension Fund and elect to exercise this power, Cadbury and its subsidiaries who are employers for the purposes of the Cadbury Pension Fund would be required to pay an amount equal to the shortfall or deficit at that time between the Cadbury Pension Fund’s assets and its liabilities assessed on the so called “buy out basis.” This is the cost of purchasing annuities to cover all the Cadbury Pension Fund benefits with a buy out provider. We estimate that such an amount may be significant and could be in excess of £1.0 billion. Buy out deficits are volatile and depend on, among other things, market conditions and the appetite of buy-out providers from time to time. In the event the Cadbury Pension Fund trustees were to wind up the fund, the amount of the deficit may be greater or less than this amount and the requirement to meet this deficit in very short order may have a material adverse effect on the combined company’s business, operating or financial results or financial position.

Cadbury’s pension liabilities are calculated using the accounting valuation basis for the purposes of determining the provision to be included in the balance sheet in its financial statements. According to Cadbury’s Annual Report on Form 20-F for the year ended December 31, 2008, the Cadbury Pension Fund was broadly in balance on an accounting basis at December 31, 2008. The level of the deficit calculated using the accounting valuation basis is volatile and depends on, among other things, market conditions from time to time. We estimate that, as at August 31, 2009, the accounting deficit would have been approximately £400 million. Following completion of the offer, depending on the circumstances at the time the next balance sheet is prepared for the combined company, Cadbury’s pension liabilities may have a material adverse effect on the combined company’s business, operating or financial results or financial position.

Upon completion of the offer, the U.K. Pensions Regulator will have power in certain circumstances to require us and our subsidiaries (including those subsidiaries outside the U.K.) to make substantial payments into or otherwise provide financial support to the Cadbury Pension Fund, for amounts up to the buy-out deficit from time to time. Thus, upon completion of the offer, liability to support the Cadbury Pension Fund will not necessarily be limited to Cadbury and its subsidiaries.

Cadbury’s “Vision into Action” initiative to deliver improvements in business performance may fail and the implementation of the plan may disrupt the combined company’s business.

On June 19, 2007, Cadbury announced a new strategy for its confectionery business called “Vision into Action,” which includes a plan to improve its margin performance to achieve a mid-teens operating margin by 2011. According to publicly available information published by Cadbury, this plan includes reductions in the number of factories and employees, material changes to Cadbury’s supply chain configuration and to the structure and operation of Cadbury’s business.

To the extent that we continue to implement the “Vision into Action” plan following completion of the offer, these reductions and changes increase the risk of disruption to the combined company’s business, which may occur, for example, through a failure to successfully implement the Vision into Action plan, unforeseen events or workforce actions.

 

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Cadbury has publicly indicated that it expects to incur a restructuring charge of £550 million (of which around £50 million is non-cash) and invest £200 million of capital expenditure behind the “Vision into Action” plan. If we continue to implement this plan following completion of the offer, there can be no guarantee that this plan, or any of Cadbury’s other plans or investments, will deliver the anticipated improvements in business performance, which could adversely affect the business of the combined company. In addition, the implementation of the plan may not give rise to a sustained improvement in Cadbury’s revenues or profitability or reach the level of projected improvement.

Risk Factors Relating to Kraft Foods Common Stock

There will be material differences between your current rights as a holder of Cadbury ordinary shares, including those represented by Cadbury ADSs, and the rights you can expect as a shareholder of Kraft Foods.

Under the terms of the offer (subject to the mix and match facility), Cadbury securityholders will receive a combination of Kraft Foods common stock and cash consideration if the offer becomes or is declared unconditional, and will consequently become holders of Kraft Foods common stock. Kraft Foods is governed by the laws of the United States, the Commonwealth of Virginia, its articles of incorporation, and its by-laws. There will be material differences between the current rights of Cadbury securityholders and the rights they can expect to have as holders of Kraft Foods common stock. For example, holders of Kraft Foods common stock do not have the benefit of statutory pre-emption rights under the Virginia Stock Corporation Act. In addition, under Virginia law, the Kraft Foods board of directors may elect to adopt certain provisions that have the effect of discouraging a third party from acquiring control of Kraft Foods, which could limit the price that some investors might be willing to pay in the future for Kraft Foods common stock. Provisions of the Virginia Stock Corporation Act and Kraft Foods’ articles of incorporation may also have the effect of discouraging or preventing certain types of transactions involving an actual or a threatened change in control of Kraft Foods, including unsolicited takeover attempts, even though such a transaction may offer Kraft Foods shareholders the opportunity to sell their Kraft Foods common stock at a price above the prevailing market price. For a detailed discussion of the material differences between the current rights of Cadbury shareholders, and the rights you can expect as a holder of Kraft Foods common stock, please see our discussion in the section of this prospectus/offer to exchange entitled “Comparison of Shareholders’ Rights.”

Cadbury securityholders will own a smaller percentage of the combined company than they currently own of Cadbury.

After completion of the offer, Cadbury securityholders will own a smaller percentage of the combined company than they currently own of Cadbury. Assuming exercise of all share options and vesting of all share awards held under the Cadbury share schemes over Cadbury ordinary shares and full acceptance of the offer, former Cadbury securityholders and existing Kraft Foods shareholders will own approximately 15.2% and 84.8%, respectively, of the outstanding shares of the combined company immediately after completion of the offer. Please see the section of this prospectus/offer to exchange entitled “The Offer—Ownership of Kraft Foods After Completion of the Offer” for a discussion of the assumptions on which these ownership percentages are based.

Risks of executing the offer could cause the market price of Kraft Foods common stock to decline.

The market price of Kraft Foods common stock may decline as a result of the offer, among other reasons, if:

 

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the integration of Cadbury’s business is delayed or unsuccessful;

 

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we do not achieve the expected benefits of our acquisition of Cadbury as rapidly or to the extent anticipated by us, financial analysts or investors or at all;

 

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the effect of our acquisition of Cadbury on our financial results is not consistent with the expectations of financial analysts or investors;

 

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former Cadbury securityholders sell a significant number of shares of Kraft Foods common stock after completion of the offer; or

 

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we fail to acquire 100% of the Cadbury ordinary shares, including those represented by Cadbury ADSs, in the offer or through the compulsory acquisition process.

Assuming exercise of all share options and vesting of all share awards held under the Cadbury share schemes over Cadbury ordinary shares and full acceptance of the offer, the number of shares of Kraft Foods common stock we will issue to Cadbury securityholders pursuant to the offer will be not more than approximately 265 million, representing approximately 15.2% of the issued and outstanding shares of Kraft Foods common stock, as increased as a result of the offer, calculated at January 15, 2010. If a significant proportion of Cadbury securityholders who receive Kraft Foods common stock in the offer seek to sell those shares within a short period after completion of the offer, this could create selling pressure in the market for Kraft Foods common stock or a perception that such selling pressure may develop, either of which may adversely affect the market for, and the market price of, Kraft Foods common stock.

The market price of Kraft Foods common stock may be affected by factors different from those affecting the price of Cadbury ordinary shares and Cadbury ADSs.

If the offer is successfully completed, Cadbury securityholders will become holders of Kraft Foods common stock. Our business differs from that of Cadbury, and our results of operations, as well as the price of Kraft Foods common stock, may be affected by factors different from those affecting Cadbury’s results of operations and the price of Cadbury ordinary shares and Cadbury ADSs.

The level of any dividend paid in respect of the Kraft Foods common stock is subject to a number of factors.

The level of any dividend paid in respect of Kraft Foods common stock is within the discretion of our board of directors and is subject to a number of factors, including the business and financial conditions, earnings and cash flow of, and other factors affecting us and our subsidiaries (and following completion of the offer, the combined company), as well as the availability of funds from which dividends can be legally paid. The level of any dividend in respect of the Kraft Foods common stock is also subject to the extent to which we receive funds, directly or indirectly, from our operating subsidiaries and divisions in a manner which creates funds from which dividends can be legally paid. Any reduction in dividends paid on Kraft Foods common stock from those historically paid, or the failure to pay dividends in any financial year, could adversely affect the market price of Kraft Foods common stock.

Risk Factors Relating to the Offer

If you elect to use the mix and match facility, you may not receive the consideration in the proportion of Kraft Foods common stock and cash requested.

There is a mix and match facility available to Cadbury securityholders. Under the mix and match facility, accepting Cadbury securityholders may elect to vary the proportions in which they receive shares of Kraft Foods common stock and cash consideration, subject to off-setting elections made by other Cadbury securityholders. Satisfaction of elections under the mix and match facility will be effected on the basis of £15.94 in cash (the closing price of a share of Kraft Foods common stock derived from the NYSE on December 1, 2009, converted to pounds sterling at an exchange rate of $1.6627 per £1.00, as quoted by WM/Reuters on December 1, 2009) for each share of Kraft Foods common stock (and vice versa). To the extent that elections cannot be satisfied in full, they will be reduced on a pro rata basis.

 

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As a result, if you make an election under the mix and match facility, you may not have your election satisfied in full or at all, and you will not know the exact number of shares of Kraft Foods common stock or the amount of cash you will receive until settlement of the consideration under the offer.

Furthermore, during the subsequent offer period, there will be separate off-setting pools for Cadbury ordinary shares, including those represented by Cadbury ADSs, tendered in the subsequent offer period and settled together on a particular settlement date. As a result, Cadbury securityholders who tender their Cadbury ordinary shares or Cadbury ADSs during the subsequent offer period and elect for more cash or more shares of Kraft Foods common stock under the mix and match facility may receive a different proportion of their preferred consideration than those who accept during the initial offer period or those who accept earlier or later during the subsequent offer period.

We describe our procedures for election and proration in paragraph 6 (The Mix and Match Facility) of Part B of Appendix A to this prospectus/offer to exchange.

The offer may adversely affect the liquidity and value of non-tendered Cadbury ordinary shares and Cadbury ADSs.

If the offer is successfully completed, the number of Cadbury securityholders and the number of non-tendered Cadbury ordinary shares and Cadbury ADSs held by individual holders may be greatly reduced. As a result, the successful completion of the offer could adversely affect the liquidity and may adversely affect the market value of the remaining non-tendered Cadbury ordinary shares and Cadbury ADSs held by the public. If the offer becomes or is declared wholly unconditional and we acquire 75% of the voting rights of Cadbury, we intend to cause Cadbury to apply for the cancellation of the listing of the Cadbury ordinary shares on the U.K. Official List and the cancellation of trading of the Cadbury ordinary shares on the LSE’s main market for listed securities. If we complete the offer, we intend, subject to the rules of the NYSE, to cause Cadbury to apply for the delisting of the Cadbury ADSs from the NYSE and terminate Cadbury’s ADS program. As a result of any delisting and cancellation of trading, Cadbury ordinary shares and Cadbury ADSs not acquired pursuant to the offer may become less liquid and may have a reduced value.

Failure to acquire 100% of the Cadbury ordinary shares, including Cadbury ADSs, may affect our ability to complete any post-closing restructuring of Cadbury and its subsidiaries. This could reduce or delay the cost savings or revenue benefits to the combined company.

To effect a compulsory acquisition of the remaining Cadbury ordinary shares, including those represented by Cadbury ADSs, we will need to first obtain at least 90% of the Cadbury ordinary shares to which the offer relates, including those represented by Cadbury ADSs. Unlike domestic U.S. corporations, English corporations cannot merge with another corporation with the approval of a majority shareholder vote. The offer is conditional upon valid acceptances being received (and not, where permitted, withdrawn) in respect of not less than 90% of Cadbury ordinary shares, including those represented by Cadbury ADSs, but this percentage may be reduced by Kraft Foods to any percentage above 50%. On January 19, 2010, we announced that we reserve the right to, and intend to, reduce the number of acceptances required to fulfill the minimum acceptance condition from 90% to 50% plus one Cadbury ordinary share (i.e., a majority) on or after January 26, 2010. Therefore, we could complete the offer without being able to acquire compulsorily the remaining Cadbury ordinary shares, including those represented by Cadbury ADSs, we do not own. We would then be entitled to exercise control of Cadbury and affect the composition of the Cadbury board of directors. However, depending on the level of acceptances received, we may not control sufficient voting rights to delist Cadbury from the U.K. Official List and from trading on the LSE; it may take longer and be more difficult to effect any post-closing restructuring; and the full amount of the cost synergies and revenue benefits identified for the combined company may not be obtained or may only be obtained over a longer period of time. In addition, if we own less than 100% of Cadbury after completion of the offer, we may not be able to carry out joint cash pooling or other intra-company transactions with Cadbury and its subsidiaries on favorable terms or at all. This may adversely affect our ability to achieve the expected amount of cost synergies and revenue benefits after the offer is completed.

 

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If we fail to acquire 100% of the Cadbury ordinary shares, including those represented by Cadbury ADSs, but we are able to effect any post-closing restructuring, the consideration that Cadbury securityholders who do not tender in the offer may receive in any post-closing restructuring may be substantially lower and/or different in form than the consideration they would have received had they tendered in the offer (and they may also be subject to different tax consequences).

If we fail to acquire in the offer and in a compulsory acquisition 100% of the Cadbury ordinary shares, including those represented by Cadbury ADSs, but are able to complete any post-closing restructuring we may decide to undertake, the consideration that Cadbury securityholders who do not tender their Cadbury ordinary shares, including those represented by Cadbury ADSs, in the offer may receive in any post-closing restructuring may be lower and/or different in form than the consideration that they would have received had they tendered their Cadbury ordinary shares, including those represented by Cadbury ADSs, in the offer. Such differences could result from the fact that:

 

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if any post-closing restructuring is the subject of litigation, we may be required to change the consideration offered to Cadbury securityholders in response to any court order;

 

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the tax consequences to Cadbury securityholders of receiving payment in any post-closing restructuring may be different from what they would have been if they had tendered their Cadbury ordinary shares, including those represented by Cadbury ADSs, in the offer; and

 

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any Kraft Foods common stock received as part of the consideration may have a different value at the time of completion of any post-closing restructuring than at the time of the completion of the offer.

Moreover, if any post-closing restructuring is the subject of litigation, a court could delay or prohibit the restructuring from occurring on its proposed terms, or at all. Accordingly, Cadbury securityholders who do not tender their Cadbury ordinary shares or Cadbury ADSs in the offer may not receive consideration for such shares promptly after the closing of the offer, or at all.

We must obtain governmental and regulatory consents to complete the offer, which, if delayed, not granted or granted with onerous conditions, may jeopardize or delay the offer, result in additional expenditures of money and resources and/or reduce the anticipated benefits of the acquisition.

The offer is conditional on, among other things, the receipt of regulatory approvals from regulators with jurisdiction over the operations of Kraft Foods and Cadbury. On December 14, 2009, the required waiting period under the HSR Act expired. On January 6, 2010, the European Commission announced that it had cleared the offer subject to the commitments that we have offered in relation to the divestiture of Cadbury’s chocolate businesses in Poland and Romania. Accordingly, both the U.S. and European Commission antitrust conditions to the offer have been satisfied. The governmental agencies from which Kraft Foods seeks these approvals have discretion in administering the governing regulations. As a condition to their approval of the transactions contemplated by the offer, agencies may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of the combined company’s business. These requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the consummation of the offer or may reduce the anticipated benefits of the acquisition of Cadbury to the combined company. Furthermore, we may not be able to obtain the required consents and approvals and, if so, the required conditions of the offer may not be satisfied. Even if all of the required consents and approvals are obtained and the conditions to the consummation of the offer are satisfied, we will not necessarily be able to control the terms, conditions and timing of the approvals. If we agree to any material requirements, limitations, costs, divestitures or restrictions in order to obtain any approvals required to consummate the offer, these requirements, limitations, additional costs or restrictions could adversely affect the two companies’ ability to integrate their operations or reduce the anticipated benefits of the proposed acquisition of Cadbury to the combined company. This could result in a delay in completion of, or a decision not to complete, the offer or have a material adverse effect on the business and results of operations of the combined

 

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company. Please see paragraph 1 (Conditions of the Offer) of Part A of Appendix A to this prospectus/offer to exchange for a discussion of the conditions of the offer and the section of this prospectus/offer to exchange entitled “The Offer—Regulatory Approvals” for a description of the material regulatory approvals necessary in connection with the offer.

Even if a material adverse change to Cadbury’s business or prospects were to occur, in certain circumstances we may not be able to invoke the offer conditions and terminate the offer, which could reduce the value of the Kraft Foods common stock we issue in the offer.

Completion of the offer is subject to a number of conditions, including that there is no material adverse change affecting Cadbury before the offer becomes, or is declared, wholly unconditional. Under the U.K. Takeover Code, and except for the minimum acceptance condition and the conditions relating to the European Commission antitrust approval (as described in the section of this prospectus/offer to exchange entitled “The Offer—Regulatory Approvals”), we may invoke a condition to the offer to cause the offer not to proceed only if the U.K. Takeover Panel is satisfied that the circumstances giving rise to that condition not being satisfied are of material significance to us in the context of the offer.

If a material adverse change affecting Cadbury were to occur and the U.K. Takeover Panel does not allow us to invoke a condition to cause the offer not to proceed, the market price of the Kraft Foods common stock may decline or our business or our financial condition may be materially adversely affected. As a result, the value of the Kraft Foods common stock received by Cadbury securityholders may be reduced.

We have not had due diligence access to Cadbury or its business or management for the purposes of preparing this prospectus/offer to exchange.

We have not had due diligence access to Cadbury or its business or management for the purposes of preparing this prospectus/offer to exchange. Accordingly, we have prepared the information in, or incorporated by reference into, this prospectus/offer to exchange based only on publicly available information regarding Cadbury and such information has not been subject to comment or verification by Cadbury, Kraft Foods or their respective directors.

We have no knowledge that any information or statements relating to Cadbury contained in, or incorporated by reference into, this prospectus/offer to exchange are inaccurate or incomplete. However, we were not involved in the preparation of such information and statements and, therefore, cannot verify the accuracy, completeness or truth of such information or any failure by Cadbury to disclose events that may have occurred, but that are unknown to us, that may affect the significance or accuracy of any such information.

In addition, we have made certain assumptions relating to the forecast level of cost savings, synergies and associated costs of the offer based only on publicly available information regarding Cadbury. Our assumptions relating to the forecast level of cost savings, synergies and associated costs of the offer may be inaccurate.

Further, the completion of the offer may give rise to the right of contractual counterparties to terminate material supply and other contracts with Cadbury or result in other consequences as a result of matters unknown to us. As such, there may be other matters relating to Cadbury that are unknown by us and that may have an adverse effect on the combined company’s financial condition and results of operations and/or result in substantial additional costs or liabilities.

 

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Whether or not the offer is completed, the announcement and prospect of the successful completion of the offer could cause disruptions in the businesses of Kraft Foods and/or Cadbury, which could have material adverse effects on their businesses and financial results, as well as on the business prospects and financial results of the combined company.

Whether or not the offer is completed, the announcement and prospect of the successful completion of the offer could cause disruptions in the businesses of Kraft Foods and/or Cadbury. Specifically if the offer succeeds, some current and prospective employees may experience uncertainty about their future roles within the combined company, which may adversely affect Kraft Foods’ and Cadbury’s abilities to retain or recruit key managers and other employees. If Kraft Foods and Cadbury fail to manage these risks effectively, the business and financial results of Kraft Foods, Cadbury and the combined company could be adversely affected.

If there are significant, unforeseen difficulties integrating the business operations of Kraft Foods and Cadbury, they could adversely affect the business of the combined company.

We intend, to the extent possible, to integrate our operations with those of Cadbury. Our goal in integrating these operations is to increase revenues through enhanced growth opportunities and achieve cost savings by taking advantage of the significant anticipated synergies of consolidation. However, we may encounter difficulties integrating our operations with Cadbury’s operations, resulting in a delay or the failure to achieve the anticipated synergies, including the expected increases in earnings and cost savings. If such difficulties are significant, this could adversely affect the business of the combined company.

We may incur higher than expected integration, transaction and offer-related costs.

We expect to incur a number of non-recurring costs associated with combining the operations of the two companies, including implementation cash costs estimated to be approximately $1.2 billion in the first three years following completion of the offer. In addition, we will incur legal, accounting and transaction fees and other costs related to the offer. Some of these costs are payable regardless of whether the offer is completed and such costs may be higher than anticipated.

Although we believe that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, will offset these implementation and offer costs over time, this net benefit may not be achieved within the expected timetable. In addition, some of these costs could be higher than we anticipate, which could reduce the net benefits of the transaction and impact our results of operations.

Please see the section of this prospectus/offer to exchange entitled “—Failure to acquire 100% of the Cadbury ordinary shares, including Cadbury ADSs, may affect our ability to complete any post-closing restructuring of Cadbury and its subsidiaries. This could reduce or delay the cost savings or revenue benefits to the combined company.”

Risk Factors Relating to Market and Currency Fluctuation

Market fluctuations may reduce the overall value of the consideration in the offer.

Unless you make a successful mix and match election, each Cadbury ordinary share, including each Cadbury ordinary share represented by a Cadbury ADS, you tender in the offer will be exchanged for 500 pence in cash and 0.1874 shares of Kraft Foods common stock. As one Cadbury ADS represents four Cadbury ordinary shares, for each Cadbury ADS you tender in the offer you will receive 2,000 pence in cash and 0.7496 shares of Kraft Foods common stock. Any fluctuation in the market price of Kraft Foods common stock or the pound sterling/U.S. dollar exchange rate between now and the consummation of the offer will increase or decrease the cash value of the Kraft Foods common stock that you will receive.

 

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Kraft Foods common stock and any dividends to be paid in respect of it will be denominated in U.S. dollars. An investment in Kraft Foods common stock by an investor whose principal currency is not U.S. dollars exposes the investor to foreign exchange rate risk. Any depreciation of the U.S. dollar in relation to such other currency will reduce the value of the investment in Kraft Foods common stock, and any dividends to be paid in respect of it, in terms of such other currency, and any appreciation of the U.S. dollar will increase the value in terms of such other currency.

Cadbury securityholders who tender their Cadbury ordinary shares and Cadbury ADSs in the offer will be subject to exchange rate risk.

The cash portion of the consideration that you will receive for your Cadbury ordinary shares is payable in pounds sterling, unless you elect to receive it in U.S. dollars. The cash portion of the consideration that you will receive for your Cadbury ADSs is payable in U.S. dollars, unless you elect to receive it in pounds sterling. As a result, the value of this consideration in any currency relevant to a Cadbury securityholder will vary depending on the exchange rate between that currency and pounds sterling or U.S. dollars, as applicable, which is likely to fluctuate between the date of this prospectus/offer to exchange and the date on which cash consideration is paid to Cadbury securityholders. Fluctuations in the exchange rate between other currencies and U.S. dollars, as applicable, will also affect the pound sterling equivalent of the price of the Kraft Foods common stock.

Furthermore, if you receive the cash portion of your consideration in U.S. dollars, the cash amount payable in pounds sterling to which you would otherwise be entitled pursuant to the terms of the offer will be paid (net of all relevant fees and expenses) in U.S. dollars, based on the exchange rate obtainable on the spot market in London on the date the cash consideration is made available by Kraft Foods to the Ordinary Share Exchange Agent or ADS Exchange Agent for delivery in respect of your Cadbury ordinary shares or Cadbury ADSs. In this case, the actual amount of U.S. dollars you receive will depend on this, so you will be subject to the risk that exchange rate fluctuations could change the amount of U.S. dollars you receive.

Shareholders in the combined company will be more exposed to currency exchange rate fluctuations as, following completion of the offer, there will be an increased proportion of assets, liabilities and earnings denominated in foreign currencies.

As a result of the successful completion of the offer, the financial results of the combined company will be more exposed to currency exchange rate fluctuations and an increased proportion of assets, liabilities and earnings will be denominated in non-U.S. dollar currencies.

The combined company will present its financial statements in U.S. dollars and will have a significant proportion of net assets and income in non-U.S. dollar currencies, primarily pounds sterling and the euro as well as a range of emerging market currencies. The combined company’s financial results and capital ratios will therefore be sensitive to movements in foreign exchange rates. A depreciation of non-U.S. dollar currencies relative to the U.S. dollar could have an adverse impact on the combined company’s financial results.

Risk Factors Relating to Cadbury’s Business

Additionally, we encourage you to read and consider other risk factors specific to Cadbury’s businesses (that may also affect the combined company after consummation of the offer) described in the section entitled “Risk Factors” in Cadbury’s Annual Report on Form 20-F for the year ended December 31, 2008, which Cadbury has filed with the SEC and which we have also incorporated by reference into this prospectus/offer to exchange. Please see the section of this prospectus/offer to exchange entitled “Incorporation by Reference.”

 

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THE COMPANIES

Kraft Foods

We are the world’s second largest food company, with revenues of $41.9 billion and earnings from continuing operations before income taxes of $2.6 billion in 2008. We have approximately 100,000 employees worldwide and we manufacture and market packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products. We generated approximately half of our revenues from outside the United States in 2008 and sell our products to consumers in approximately 150 countries. At December 31, 2008, we had operations in more than 70 countries and made our products at 168 manufacturing and processing facilities worldwide. At September 30, 2009, we had net assets of $25.2 billion and gross assets of $66.7 billion. We are a member of the Dow Jones Industrial Average, Standard & Poor’s 500, the Dow Jones Sustainability Index and the Ethibel Sustainability Index.

We have a proven track record of successfully completing and integrating strategic combinations to build and grow iconic brands and multi-national businesses. These acquisitions include LU Biscuit in 2007 and Nabisco in 2000.

Our portfolio includes nine brands with annual revenues exceeding $1.0 billion each, including Kraft cheeses, dinners and dressings; Oscar Mayer meats; Philadelphia cream cheese; Maxwell House and Jacobs coffee; Nabisco cookies and crackers; Oreo cookies; Milka chocolates; and LU biscuits. Our portfolio also includes more than 50 brands which each generate annual revenues of more than $100 million, including Côte d’Or, Toblerone, Marabou and Alpen Gold chocolates; Royal biscuits; and Kenco, Carte Noire and Grand’ Mère coffees.

Our strategy is centered on marketing and developing leading consumer brands and pursuing growth opportunities consistent with consumer trends in order to deliver shareholder value. Our increasing investment in snacks and quick meals and our portfolio of iconic brands aligns with growing consumer interest in convenience products and premium brands. Our focus on snacks and confectionery products fits well within our strategy of growth in instant consumption channels.

Four priorities have shaped our long-term strategy:

 

•

focusing on growth categories to transform into a leading snack, confectionery and quick meals company. This is being achieved through exiting lower growth and/or lower margin businesses and reinvigorating high cash flow businesses to fund growth;

 

•

expanding our footprint in rapidly growing developing markets to benefit from trading up by consumers and achieving the scale to establish cost-efficient infrastructure in key geographies;

 

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increasing our presence in instant consumption channels as they continue to gain share versus grocery channels in the U.S. and European Union; and

 

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enhancing margins by improving our portfolio mix and reducing costs while investing in quality.

We believe our key competitive strengths include:

 

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our global scale;

 

•

our portfolio of leading brands;

 

•

a leading sales and distribution system;

 

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•

a proven track record of acquiring and integrating large-scale new businesses; and

 

•

an experienced management team.

We are a Virginia corporation with principal executive offices at Three Lakes Drive, Northfield, IL 60093. Our telephone number is (847) 646-2000 and our Internet address is www.kraftfoodscompany.com.

Cadbury

Cadbury is an international confectionery business that generated £5.4 billion in total revenue from its global operations in 2008. At December 31, 2008, Cadbury operated in over 60 countries and had over 45,000 employees. Cadbury’s principal product segments are: chocolate, which contributed 46% of Cadbury’s revenue in 2008; gum, which contributed 33% of Cadbury’s revenue in 2008; and candy, which contributed 21% of Cadbury’s revenue in 2008 (in each case, excluding the revenues of Reading Scientific Services Limited).

Cadbury’s major brands by segment include:

 

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Chocolate—Cadbury Dairy Milk, Cadbury Creme Egg, Flake and Green & Black’s;

 

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Gum—Trident, Hollywood, Stimorol, Dentyne, Clorets and Bubbaloo; and

 

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Candy—Halls, Maynard’s, The Natural Confectionery Co. and Cadbury Eclairs.

Cadbury is registered under the laws of England and Wales as a public limited company with its registered office (principal executive office) at Cadbury House, Sanderson Road, Uxbridge, England, UB8 1DH. Its telephone number is +44 1895 615000 and its Internet address is www.cadbury.com.

 

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BACKGROUND AND REASONS FOR THE OFFER

Background of the Offer

We continually review our strategic alternatives. In the summer of 2009, we gave serious consideration to whether or not a business combination with Cadbury could be accomplished on favorable terms.

On August 20, 2009, our board of directors met with members of senior management and certain of our financial advisors. Our board of directors authorized Ms. Irene Rosenfeld, our Chairman and Chief Executive Officer, to approach Cadbury to ascertain its interest in a business combination.

On August 28, 2009, Ms. Rosenfeld met with Mr. Roger Carr, the Chairman of Cadbury, in London to express our interest in pursuing a business combination with Cadbury. Ms. Rosenfeld informed Mr. Carr that our board of directors had authorized her to make a proposal to acquire all of the outstanding Cadbury ordinary shares for 300 pence in cash and 0.2589 new shares of Kraft Foods common stock per Cadbury ordinary share. That same day, Ms. Rosenfeld sent Mr. Carr the following letter confirming their conversation and the proposal put forth by Ms. Rosenfeld at the meeting (footnotes omitted):

28 August 2009

Mr. R. Carr

Cadbury plc

Cadbury House

Sanderson Road

Uxbridge

UB8 1DH

Dear Roger,

I very much enjoyed meeting you this morning. As I explained, we believe that the combination of our companies would provide a compelling value proposition for both our shareholders. As analysts and industry observers have long speculated, our two great companies are highly complementary and a combination makes a great deal of strategic and financial sense. We believe that now is the time to pursue a transaction as a result of the significant opportunities available to both of us. We look forward to engaging in constructive, friendly discussions and working toward a positive outcome on a recommended basis.

We have great respect and admiration for Cadbury plc (“Cadbury”), its employees, its leadership and its proud heritage. We have also taken note of your recent performance and the successful ongoing implementation of your Vision Into Action programme. However, we believe that Cadbury’s prospects, ability to fully realise operational efficiencies and capacity to invest are necessarily constrained given its limited scale and scope relative to larger global competitors. We see few catalysts for sustained future value creation for Cadbury as a standalone entity. In contrast, we have concluded that we can strengthen both our companies by bringing them together, enhancing our worldwide scale and scope, and capitalising on significant opportunities to build a global leader in the food and snacking industry for the benefit of all of our respective stakeholders. In so doing, we are eager to build upon the success of your iconic brands and strong British heritage through increased investment and innovation.

Accordingly, I am writing to set out the details of a possible offer to combine Cadbury and Kraft Foods Inc. (“Kraft Foods”) (a “Possible Offer”), as approved by the Board of Directors of Kraft Foods. Subject to the pre-conditions set out below, Kraft Foods is prepared to offer 300 pence in cash and 0.2589 new Kraft Foods shares per Cadbury share, which values each Cadbury share at 755 pence

 

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(based on yesterday’s closing price of $28.42 for a Kraft Foods share and an exchange rate of 1.617 $/£). This price represents an attractive premium to any measure of the standalone value of Cadbury and fully reflects your recent performance and prospects. Specifically, this price represents a premium of:

 

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44% over Cadbury’s share price of 524 pence on 3 July 2009, prior to recent analyst suggestions regarding potential sector consolidation;

 

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37% over Cadbury’s 90-day average share price of 553 pence in the period up to 27 August 2009, the last business day preceding this letter; and

 

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31% over Cadbury’s share price of 578 pence at close yesterday.

We would also point out that this price is beyond any price at which Cadbury’s shares have traded since the demerger.

The Possible Offer would provide your shareholders with both value certainty and the opportunity to enjoy the significant value upside in the combined entity’s attractive growth prospects and considerable synergies. Kraft Foods would also offer a mix and match facility under which Cadbury shareholders could elect, subject to availability, to vary the proportions in which they would receive cash and new Kraft Foods shares.

I believe that the strategic and financial rationale for this transaction is compelling. The transaction would create:

 

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a company with approximately $50 billion in revenues, with leading shares in snacking and an exceptional portfolio of confectionery and biscuit brands around the world;

 

•

a geographically diversified combined business, with leading positions and significant scale in key developing markets including India, Mexico, Brazil, China and Russia;

 

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a strong presence in instant consumption channels in both developed and developing markets, expanding the reach and margin potential of the combined business; and

 

•

the potential for meaningful revenue synergies over time from investments in distribution, marketing and product development, as well as a significant opportunity to realise pre-tax cost savings of at least $625 million annually through increased operational efficiencies.

Kraft Foods has a proven track record of successfully completing and integrating strategic combinations to build iconic brands and multi-national businesses, including the acquisitions of LU in 2007 and Nabisco in 2000.

A combination with Cadbury is consistent with Kraft Foods’ stated strategic objective to build a high-performing global company by reframing our categories, capitalising on our established sales capabilities and driving down costs without compromising our commitment to high quality. Over the past three years, we have successfully positioned Kraft Foods for sustainable, profitable growth. A combination with Cadbury would mark a logical next step in our transformation as we shape the company into a more global, higher-growth and higher-margin entity.

Together, we would draw on the collective strengths of our two organisations and create a stronger, more competitive global company for the benefit of all stakeholders. We believe that the growth prospects and global scope of the enlarged entity should lead to increased opportunities for talented employees and managers of both companies. In addition, we confirm that the existing contractual employment rights, including pension rights, of all employees of Cadbury would be fully safeguarded.

 

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The consideration required for the Possible Offer would be provided from a combination of Kraft Foods’ existing funds, new debt and the issuance of equity. Financing would be on the basis that Kraft Foods would maintain an investment-grade credit rating. The significant cash flow of the enlarged entity following a combination would allow for rapid debt paydown and the continued funding of growth initiatives.

We, together with our legal advisers, have undertaken an analysis in relation to anti-trust matters. The complementary nature of our two businesses means that any antitrust concerns will be few, and limited in scope: we are confident that any issues can be appropriately addressed within the envisaged implementation timeframe. In this regard, we would suggest that our respective legal advisers meet at your earliest convenience, in order for our advisers to explain their analysis, and for next steps to be identified.

We believe it is in all parties’ interests to progress this transaction as swiftly as possible. Our senior management and advisers have already completed extensive analysis and due diligence based on publicly available information. Accordingly, our due diligence requirements are limited, confirmatory in nature and capable of being addressed within a compressed timeframe. Lazard is acting as our lead financial adviser. We have also retained Centerview Partners, Citigroup and Deutsche Bank as financial advisers. Our legal advisers are Clifford Chance; Cravath, Swaine & Moore; Gibson, Dunn & Crutcher; and Arnold & Porter.

It is Kraft Foods’ preference to implement any offer by means of a scheme of arrangement but we reserve the right to change this to a general offer. Any offer, if made, would be subject to the terms and conditions usually attaching to a scheme of arrangement, or offer, involving a UK public company.

The making of any offer would be subject to the following pre-conditions:

 

•

satisfactory completion of a limited due diligence review by Kraft Foods, including access to Cadbury’s internal plan and projections;

 

•

Kraft Foods obtaining satisfactory financing; and

 

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a unanimous recommendation by the directors of Cadbury to vote in favour of the scheme, or if relevant, to accept the offer.

For the avoidance of doubt, this letter should not be construed in any regard as constituting an offer or evincing an intention to make an offer or inviting an offer or imposing an obligation to make an offer for Cadbury and any of its securities or otherwise giving rise to legal relations (save for the obligation to keep its terms confidential) and, in particular, does not constitute a firm intention to make an offer for the purposes of Rule 2.5 of The City Code on Takeovers and Mergers. This proposal is made on a strictly private and confidential basis. This letter shall be governed by and construed in accordance with English law.

We trust that our proposal makes clear our level of seriousness and enthusiasm for pursuing this opportunity. We are willing to commit substantial time and financial resources to do so. This matter has the highest priority for Kraft Foods and we are keen to have our advisers and executive team engage with yours so that we can progress this proposal in an expeditious manner.

Per our conversation, I look forward to hearing from you shortly.

Yours sincerely,

Irene B. Rosenfeld

 

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On August 31, 2009, Ms. Rosenfeld received the following letter from Mr. Carr stating that the Cadbury board of directors was not interested in the proposed business combination with Kraft Foods:

August 31, 2009

Ms. Irene B. Rosenfeld

Chairman & Chief Executive Officer Kraft Foods

Three Lakes Drive

Northfield, Illinois

60093

Dear Irene,

I have discussed your letter of 28 August with the Board of Directors of Cadbury plc.

The Board believes strongly in both the strategy and prospects of Cadbury as an independent company. The Cadbury business is unique in both category and geographical scope and we are confident in our standalone growth prospects.

As you will no doubt have seen, we are delivering against our Vision into Action plan as clearly demonstrated by our performance and we have the strength in our brands, together with the necessary scale in our categories and the management capacity to deliver substantial value to our shareholders.

Your proposal is unsolicited, unattractive and fundamentally undervalues Cadbury. Accordingly the Board, with the unqualified support of its advisers (Goldman Sachs, Morgan Stanley and UBS), unanimously rejects your proposal and confirms its commitment to its independent strategy.

Yours sincerely,

Roger Carr

Chairman, Cadbury plc

On September 7, 2009, concurrently with our public announcement of our proposal to acquire Cadbury, Ms. Rosenfeld sent Mr. Carr the following letter:

7 September 2009

Mr. R. Carr

Cadbury plc

Cadbury House

Sanderson Road

Uxbridge

UB8 1DH

Dear Roger,

Thank you for your letter in response to our discussion on 28 August and the letter I sent to you as a follow-up outlining our possible offer (a “Possible Offer”) for Cadbury plc (“Cadbury”). I have given careful consideration to your response.

Although I am disappointed that you rejected unequivocally our proposal, I remain committed to working toward a recommended offer and to maintaining a constructive dialogue. We are therefore disclosing publicly our Possible Offer as a means to encourage and further that process.

 

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I continue to believe strongly in the strategic rationale for combining our two companies and that our Possible Offer represents an attractive premium and a compelling value proposition for your shareholders.

As I outlined during our meeting, I believe we can strengthen both of our companies by bringing them together, enhancing their worldwide scale and scope, and capitalising on significant opportunities, building on the position of Kraft Foods Inc. (“Kraft Foods”) as a global powerhouse in snacks, confectionery and quick meals for the benefit of all of our respective stakeholders.

We understand the great sense of pride that you and your team have for Cadbury and its brands. We also have a long history of respecting and building iconic brands like Oreo, LU, Milka, Toblerone, Kenco, Philadelphia and Dairylea to name just a few. Kraft Foods is committed to building upon Cadbury’s success and strong British heritage through increased investment and innovation.

Our extensive combined global business network would create opportunities for talented Cadbury employees and managers across all areas of the combined enterprise. We would augment Kraft Foods’ and Cadbury’s world-class capabilities by employing a “best of both” focus, from sales and marketing to distribution and manufacturing. For example, we believe we would be in a position to continue to operate the Somerdale facility, which is currently planned to be closed, and invest in Bournville, thereby preserving UK manufacturing jobs.

I also want to reiterate that our Possible Offer represents a compelling value proposition for your shareholders. Given the proposed consideration mix of cash and shares, they would enjoy both value certainty and significant potential upside in the combined entity’s attractive growth prospects and meaningful synergies. As we discussed, and as I noted in my previous letter to you, we commend you on your successful ongoing implementation of Vision Into Action (“VIA”). I believe Cadbury’s share price already reflects its prospects as a standalone entity and the benefits of VIA. Our Possible Offer therefore not only takes into account these factors, but also provides a significant premium and, I believe, significantly more value for your shareholders than Cadbury could create independently.

Together, we can draw on the collective strengths of our two organisations to create a stronger, more competitive global company for the benefit of all our stakeholders. I would ask you to reconsider your rejection of our Possible Offer and would welcome a constructive dialogue.

Yours sincerely,

Irene B. Rosenfeld

For the avoidance of doubt, this letter should not be construed in any regard as constituting an offer or evincing an intention to make an offer or inviting an offer or imposing an obligation to make an offer for Cadbury and any of its securities or otherwise giving rise to legal relations and, in particular, does not constitute a firm intention to make an offer for the purposes of Rule 2.5 of The City Code on Takeovers and Mergers. This letter shall be governed by and construed in accordance with English law.

On September 7, 2009, we issued a press release setting forth the terms of this proposal, which we refer to as the September 7 proposal, and the text of our August 28, 2009 and September 7, 2009 letters.

On the same day, September 7, 2009, the Cadbury board of directors rejected the September 7 proposal in the following statement issued via press release:

In response to the announcement by Kraft Foods Inc. (“Kraft Foods”), Cadbury plc (“Cadbury” or the “Group”) confirms that it recently received an unsolicited proposal from Kraft Foods regarding a possible share and cash offer for the Group which is conditional on, inter alia, financing and due diligence. The Board of Cadbury reviewed the proposal with its advisers and rejected it.

 

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The Board is confident in Cadbury’s standalone strategy and growth prospects as a result of its strong brands, unique category and geographic scope and the continued successful delivery of its Vision into Action plan. The Board believes that the proposal fundamentally undervalues the Group and its prospects.

On September 12, 2009, Ms. Rosenfeld received the following letter from Mr. Carr reiterating Cadbury’s opposition to our proposal and Cadbury’s commitment to remaining an independent company.

Dear Irene,

In my letter of 31st August, I informed you that the Board had rejected your unsolicited proposal on the grounds that it is unattractive and fundamentally undervalues Cadbury. Under your proposal, Cadbury would be absorbed into Kraft Foods’ low growth, conglomerate business model, an unappealing prospect which contrasts sharply with our strategy to be a pure play confectionery company. I also re-affirmed the Board’s confidence in our future prospects as an independent company. There is nothing in your letter dated 7th September, or your various announcements on and since that date, to change our view.

I would like to take the opportunity to expand on some points I made in my letter.

Over the past few years, Cadbury has completed a major corporate transformation through the acquisition of Adams and the demerger and sale of our beverage businesses. The disposal of Beverages provides the clear business focus we believe essential to achieve outstanding performance.

We have created a pure play confectionery business with strong brands occupying leading market positions in both developed markets and high growth emerging economies – a business of considerable inherent value, impossible to replicate and with a unique position in the global confectionery market. We have a clear set of targets, a track record of delivery accepted by the market and value enhancing plans to further exploit our proven growth platforms.

We have demonstrated through our performance to date that we have the scale, capabilities and resource to deliver on our commitments to shareholders. Since the Adams acquisition, our confectionery business has delivered top line growth of over 6%, we have increased our global market share by over 100 bps and generated comparable margin growth of over 200 bps, all while materially increasing spend on marketing and science and technology to drive innovation.

We have been able to demonstrate both organic and inorganic growth. The acquisition of Adams, together with more recent acquisitions, including Intergum and Sansei, provided scale and new growth opportunities in attractive product areas of gum and candy together with exposure to emerging markets that complemented our powerful British Commonwealth heritage.

Our integration of Adams achieved combined cost and revenue synergies of 14% by the end of 2006. We achieved this performance by reinvigorating sales growth, re-stimulating the acquired brands through increased marketing investment and widening the product range through greater commitment to product innovation.

We understand the attraction of our business and fully appreciate the value and benefits it would offer to those looking for superior growth and exposure to our attractive product segments and markets. Equally, the quality of our management, the momentum of our business, the power of our brands, the strength of our market positions and the spread of our global footprint continue to underpin our belief in the business and its prospects as an independent entity.

 

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Finally, I would emphasise that the delivery of value to our shareholders remains at the top of our agenda. Your proposal is for Cadbury shareholders to exchange shares in a pure-play confectionery business for cash and shares in Kraft Foods, a company with a considerably less focused business mix and historically lower growth. In addition, the proposal is of uncertain value for Cadbury shareholders as underlined by the movement in the Cadbury share price since your announcement. Your proposal fundamentally fails to reflect the current value of Cadbury as a standalone business, its growth prospects and the potential synergies of a combined entity.

We are committed to the delivery of optimum value to our shareholders and our Board remains convinced that this is achieved through continuing to deliver our standalone pure play confectionery strategy.

Yours sincerely,

Roger Carr

Chairman, Cadbury plc

During October 2009, our board of directors met on several occasions with management and certain of our financial advisors to discuss the due diligence investigation conducted to date with respect to Cadbury by certain of our legal and other advisors, to discuss the terms of the offer and to approve the bridge facility described in the section of the original prospectus/offer to exchange entitled “The Offer—Financing of the Offer; Source and Amount of Funds.”

On November 6, 2009, our board of directors met with management and certain of our financial advisors. At this meeting, our board of directors approved the offer on the financial terms set forth in the September 7 proposal, including issuing shares of Kraft Foods common stock in connection with the offer.

On November 9, 2009, we announced a firm intention to make an offer to acquire all of the outstanding Cadbury ordinary shares, including those represented by Cadbury ADSs.

On that same day, November 9, 2009, the Cadbury board of directors issued a statement recommending that Cadbury shareholders reject our offer.

Between November 9, 2009 and December 4, 2009, our board of directors met several times with management to discuss the terms of the offer and to approve the offer documentation.

On December 4, 2009, we commenced the offer on the financial terms set forth in the September 7 proposal by filing the registration statement of which this prospectus/offer to exchange forms a part with the SEC, issuing a press release and summary advertisement regarding the commencement of the offer and mailing the other offer documentation. On December 7, 2009, we published a further summary advertisement and a formal notice regarding the offer.

On December 14, 2009, Cadbury filed a Solicitation/Recommendation Statement on Schedule 14D-9 with the SEC and published a U.K. defense document, reporting that the Cadbury board of directors unanimously rejected the offer on the terms set forth in the original prospectus/offer to exchange, which we refer to as the December 4 offer, and recommended that Cadbury shareholders take no action in relation to the December 4 offer.

On December 15, 2009, we issued a response to Cadbury’s defense document.

On January 5, 2010, we extended the offer until 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010.

 

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On January 12, 2010, Cadbury amended its Solicitation/Recommendation Statement on Schedule 14D-9 and published a U.K. defense document, reiterating its recommendation that Cadbury securityholders should reject the December 4 offer and take no action in relation to that offer.

On January 16, 2010, our board of directors met with members of senior management and certain of our financial advisors. Our board of directors authorized Ms. Rosenfeld to proceed with an increased offer within a range of valuations and to approach Cadbury regarding the possibility of a recommended offer.

On the morning of January 18, 2010, Ms. Rosenfeld met with Mr. Carr and certain of their respective advisors in London to discuss an increased offer. Ms. Rosenfeld and Mr. Carr and their advisors met several times throughout the day and negotiated the terms of our revised offer as set forth in this prospectus/offer to exchange.

On January 19, 2010, we publicly announced the terms of the revised offer and the unanimous recommendation by the Cadbury board of directors that Cadbury securityholders accept the terms of our revised offer on the terms set forth in this prospectus/offer to exchange.

Reasons for the Offer

Creation of a Global Leader in the Food and Confectionery Industry

We believe that a combination of Kraft Foods and Cadbury represents a strong and complementary strategic fit, creating a global confectionery leader, with a portfolio including more than 40 confectionery brands, each with annual sales in excess of $100 million.

Globally, the combined Company would be number one in the chocolate and sugar confectionery segments and a strong number two in the high growth gum segment. Cadbury’s leading brands, such as Cadbury, Trident and Halls, are highly complementary to our portfolio and would benefit from our global scope, scale and array of proprietary technologies and processes. In addition, the acquisition of Cadbury will significantly enhance the strength of our presence in the confectionery sector, enabling us to leverage Cadbury’s product development capabilities.

We believe that confectionery markets are consolidating and scale is becoming increasingly important, in part due to retailers’ increasing bargaining power, control of the supply chain and growing portfolio of their own retailer brands, which have benefited from the global economic climate. The combination of Kraft Foods and Cadbury provides the combined company with important additional scale to compete even more effectively in the confectionery sector.

Kraft Foods and Cadbury have highly complementary geographic footprints. Importantly, a combination would increase scale for both companies in developing markets such as Brazil, Russia and China, where Kraft Foods has a stronger presence, and India, Mexico and South Africa, where Cadbury holds leading positions. The company would also benefit from an improved position across Europe, including in France and Spain.

Kraft Foods’ and Cadbury’s routes to market are also highly complementary. Kraft Foods is particularly strong in the grocery channel in North America and Western Europe, while Cadbury is well positioned in instant consumption channels, which have become increasingly important in both developed and developing markets. A combination provides an enhanced platform for the Combined Group to distribute both Cadbury’s and Kraft Foods’ products through both channels, creating an attractive opportunity for higher growth and margins.

Attractive Investment Opportunity for Cadbury Securityholders

The offer equates to an enterprise value multiple of 13.0 times Cadbury’s “underlying” 2009 EBITDA based on the closing share price of $29.58 per share of Kraft Foods common stock on January 15, 2010 and an exchange rate of $1.63 per £1.00 (as quoted by WM/Reuters on January 18, 2010). The enterprise value multiple is calculated assuming the exercise of all share options and vesting of all share awards held under Cadbury’s share schemes.

 

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We have presented the offer by referring to a multiple of Cadbury’s underlying EBITDA under IFRS. We believe that EBITDA facilitates operating performance comparisons from period to period and company to company by eliminating potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of tangible assets (affecting relative depreciation expense). We have presented the offer by referring to an enterprise multiple of Cadbury’s underlying EBITDA because we believe securities analysts, investors and other interested parties frequently use it to evaluate similar issuers. EBITDA is a non-U.S. GAAP measure for IFRS purposes. EBITDA has limitations as an analytical tool, including:

 

•

it does not reflect Cadbury’s cash expenditures, or future requirements for, capital expenditures or contractual commitments;

 

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it does not reflect changes in, or cash requirements for, Cadbury’s working capital needs;

 

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it does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on Cadbury’s debt;

 

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although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA measures do not reflect any cash requirements for such replacements;

 

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it is not adjusted for all non-cash income or expense items that are reflected in Cadbury’s statements of cash flows; and

 

•

other companies in the food industry may calculate this measure differently therefore limiting its usefulness as a comparative measure.

Because of these limitations, you should not consider EBITDA as a measure of discretionary cash available to Cadbury, and you should not consider it in isolation from, or as a substitute for, analysis of Cadbury’s results of operations, including its cash flows, as reported under IFRS. In addition, the criteria and accounting principles upon which EBITDA is based can vary from company to company. “Underlying EBITDA” and “diluted underlying earnings per share” are calculated based on Cadbury’s definitions for those terms and include adjustments for restructuring costs, certain discrete items outside Cadbury’s core trading activities (“non-trading items”), amortization and impairment of acquisition intangibles, and derivative accounting and any associated tax effect. Cadbury defines “underlying” to mean adjusted for restructuring costs, non-trading items, amortization and impairment of acquisition intangibles, and derivative accounting and any associated tax effect. The offer is presented as an enterprise multiple of Cadbury’s EBITDA as a supplemental measure that is not required by, or presented in accordance with, U.S. GAAP or IFRS. EBITDA is not a measure of Cadbury’s financial performance or liquidity under IFRS and should not be considered as an alternative to gross profit, operating profit or any other performance measure derived in accordance with IFRS or as an alternative to cash flow from operating activities as a measure of Cadbury’s liquidity.

We caution you that there can be no assurance about future results, including results considered or expected as described in this section, such as assumptions regarding potential synergies. The information presented in this section is forward looking in nature and, therefore, you should read it in light of the factors discussed in the section of this prospectus/offer to exchange entitled “Forward-Looking Statements.”

 

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Substantial Synergy Benefits

Although no assurance can be given that any particular level of cost savings will be achieved, the Kraft Foods and Cadbury combination is expected to provide the potential for meaningful revenue synergies over time from investments in distribution, marketing and product development. In addition, it is expected that pre-tax cost savings of at least $675 million annually can be realized by the end of the third year following completion. Total one-off implementation cash costs of approximately $1.3 billion are expected to be incurred in the first three years following completion.

Both we and Cadbury have implemented extensive cost saving and operating efficiency programs in recent years and have already delivered significant margin improvement and revenue growth improvements. These annual cost savings are still expected to be achieved over and above the current performance improvement plans at each of Kraft Foods and Cadbury (including Cadbury’s updated Vision into Action program). While it is anticipated that these targeted savings will continue to be delivered, we believe that the combined company would be capable of achieving substantial further cost savings through economies of scale and procurement benefits, general and administrative cost savings and marketing and selling costs savings.

Following completion of the acquisition, Cadbury securityholders will be able to share in the synergies resulting from the combination of Kraft Foods and Cadbury through the share component of the offer.

The expected sources of the expected annual pre-tax cost savings of at least $675 million are:

 

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potential operational cost savings of $300 million per annum resulting from efficiencies and economies of scale in the areas of procurement, manufacturing, customer service, logistics and research and development;

 

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potential general and administrative cost savings of $250 million resulting from efficiencies in the areas of central, regional and country level administrative expenses; and

 

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potential marketing and selling cost savings of $125 million resulting from efficiencies and economies of scale in the areas of marketing, media and selling expenses.

When evaluating the cost savings we have assumed the following:

 

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that Kraft Foods will acquire 100% of the shares in Cadbury following completion of the offer, without undue delay;

 

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that there will be no material unanticipated impact on the combined company arising from any decisions made by competition authorities;

 

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that there will be no material change to the market dynamics affecting Kraft Foods and/or Cadbury following completion of the offer; and

 

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that there will be no material change to exchange rates following completion of the offer.

In establishing the estimate of cost savings, we have assumed that Cadbury’s operations, processes and procedures are comparable to those of our own related operations, except where publicly available information clearly indicates otherwise. Kraft Foods’ management, aided by its previous integration experience and through an understanding of Cadbury’s cost structure based on their own market intelligence and experience, has determined the source and scale of realizable cost savings. The cost savings and the one-off implementation cash costs of achieving the cost savings are incremental to Kraft Foods’ and, to the best of our knowledge, Cadbury’s existing plans. In addition to information from Kraft Foods’ management, the sources of information that we have used to arrive at the estimate of cost savings include:

 

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Cadbury’s Annual Report and Accounts for the year ended December 31, 2008;

 

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Cadbury’s presentations to analysts;

 

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Cadbury’s web site;

 

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analysts’ research;

 

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other public information;

 

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Kraft Foods’ knowledge of the industry and of Cadbury; and

 

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Kraft Foods’ experience of cost savings from previous transactions, in particular, its acquisitions of LU Biscuit and Nabisco.

We have not had discussions with Cadbury’s management nor had access to Cadbury’s books and records to confirm the reasonableness of the assumptions we set out above to support our estimate of cost savings. Therefore, there remains an inherent risk in this forward-looking estimate. Please see the section of this prospectus/offer to exchange entitled “Risk Factors—Risk Factors Relating to the Offer—Failure to acquire 100% of the Cadbury ordinary shares, including Cadbury ADSs, may affect our ability to complete any post-closing restructuring of Cadbury and its subsidiaries. This could reduce or delay the cost savings or revenue benefits to the combined company.”

Financial Effects of the Transaction

We believe that the offer will deliver the following key benefits:

 

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accretion to earnings per share in 2011 of approximately $0.05 on a cash basis; and

 

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a mid-teens return on investment, well in excess of our cost of capital.

We believe that the offer is consistent with our commitment to maintain a financially disciplined approach and is well within the key criteria outlined in our announcement of a possible offer for Cadbury on September 7, 2009:

 

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accretion to earnings in the second year following completion on a cash basis (which excludes the one-time costs to achieve synergies and expenses related to the transaction and the impact of non-cash items such as the amortization of intangibles after acquisition);

 

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a return on investment in excess of our cost of capital within an acceptable timeframe;

 

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retention of our investment-grade credit rating; and

 

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maintenance of our dividend.

Following the combination with Cadbury, we expect to revise our long-term growth targets to approximately 5% for revenue and 9-11% for earnings per share, from our previously announced 4+% and 7-9% respectively.

In addition, the acquisition is expected to enhance the quality of the combined company’s earnings, and create a business with strong discretionary cash flow generation and attractive revenue growth prospects across a diversified portfolio of brands and product groups worldwide.

 

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Excellent Investment Opportunity

We believe that scale is important in the global food industry

As the world’s second largest food company, with 2008 revenues of $41.9 billion, we have significant global scale, with operations in more than 70 countries. While the United States is a key market and we are the number one food company there based on retail sales, we generated approximately half of our revenues from outside the United States in 2008 and sell our products in approximately 150 countries around the world.

We believe that our portfolio of leading brands is one of the strongest in the global food industry, with nine of our brands generating annual revenues exceeding $1 billion each. Our objective is to be the category leader in our principal markets and we generate 80% of our revenues from categories in which we hold the number one position.

Over the past three years, our management has successfully repositioned us for sustainable, profitable growth by reframing our categories, capitalizing on our established sales capabilities and driving down costs without compromising our commitment to high quality. Our strategy is centered on marketing and developing leading consumer brands and pursuing growth opportunities to deliver shareholder value. We remain confident in meeting our long-term performance targets.

We have upgraded our EPS guidance

On January 12, 2010, we increased our guidance for 2009 diluted earnings per share, to at least $2.00 (up approximately five percent from 2008) versus the previous expectation of at least $1.97. This increased guidance reflects strong operating gains as well as a significant increase in marketing investments versus the prior year.

We expect to achieve this level of diluted earnings per share while continuing to increase investment behind our brands, with advertising and consumer marketing spending expected to grow to approximately 7% of sales in 2009 from 6.7% of sales in 2008.

Our share price

Since the announcement of our possible offer for Cadbury on September 7, 2009, we believe our share price performance has been adversely affected by a number of factors of a short-term nature, including: (i) concern that we will not maintain financial discipline regarding an acquisition of Cadbury; (ii) concern that the issuance of Kraft Foods common stock to certain Cadbury securityholders may result in “flowback” of such shares; and (iii) short selling activity. We believe that, following completion of our acquisition of Cadbury, these short-term pressures on our share price should dissipate.

By way of illustration, we note the following:

 

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Kraft Foods common stock has historically traded on a current year price earnings multiple broadly in line with that of the S&P 500 Index. Based on Kraft Foods’ own guidance for its 2009 diluted earnings per share of at least $2.00, Kraft Foods’ historical 2009 price earnings multiple is 14.8 times as at January 15, 2010 (the last trading day prior to the filing of this prospectus/offer to exchange). The historical 2009 price earnings multiple of the S&P 500 Index is 24.4 times as at the same date;

 

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between September 4, 2009 (the last U.K. business day preceding the announcement of our possible offer for Cadbury) and January 15, 2010 (the last trading day prior to the filing of this prospectus/offer to exchange), the share price for Kraft Foods common stock has increased by approximately 5.3% from $28.10 to $29.58. However, the S&P 500 Index has increased by approximately 11.8% over the same period;

 

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analysts’ consensus price target for Kraft Foods common stock is $32.67 per share and 92% of Kraft Foods’ current analyst recommendations are either a “buy” or a “hold”; and

 

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Kraft Foods common stock currently has a dividend yield of approximately four percent.

 

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THE OFFER

Terms of the Offer

Upon the terms and subject to the conditions set forth in this prospectus/offer to exchange, we are offering to acquire all of the issued and outstanding Cadbury ordinary shares, including those represented by Cadbury ADSs. Under the basic terms of the offer, Cadbury securityholders who accept the offer will be entitled to receive:

 

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500 pence in cash and 0.1874 shares of Kraft Foods common stock for each outstanding Cadbury ordinary share validly tendered and not withdrawn; and

 

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2,000 pence in cash and 0.7496 shares of Kraft Foods common stock for each outstanding Cadbury ADS validly tendered and not withdrawn.

If you tender Cadbury ordinary shares in the offer, you will receive the cash portion of the offer consideration for your Cadbury ordinary shares in pounds sterling, unless you specifically elect to receive it in U.S. dollars. If you tender your Cadbury ADSs in the offer, you will receive the cash portion of the offer consideration for your Cadbury ADSs in U.S. dollars, unless you specifically elect to receive it in pounds sterling.

We will not allot or issue fractions of shares of Kraft Foods common stock. To the extent that Cadbury securityholders are entitled to fractional shares, those fractional entitlements will be aggregated and sold in the market and the net proceeds of such sale (following conversion from U.S. dollars to pounds sterling, if applicable) distributed pro rata to the Cadbury securityholders entitled thereto.

The shares of Kraft Foods common stock that will be issued in the offer and in any compulsory acquisition will be listed on the NYSE.

The offer is a single offer for all of the issued and outstanding Cadbury ordinary shares, including those represented by Cadbury ADSs, and is being communicated by separate offer documentation to satisfy regulatory requirements. All holders of Cadbury ordinary shares who are U.S. holders (within the meaning of Rule 14d-1(d) under the Exchange Act) or residents of Canada and all holders of Cadbury ADSs, wherever located, will receive this prospectus/offer to exchange. All holders of Cadbury ordinary shares who are not U.S. holders or residents of Canada will receive separate offer documents. Cadbury securityholders will only receive the relevant offer documents if they are permitted by law to receive them. The terms of the offer are the same regardless of the offer documentation used.

We reserve the right to elect, with the agreement of Cadbury and the consent of the U.K. Takeover Panel, where necessary, to implement the acquisition of Cadbury by way of a court-approved “scheme of arrangement” in accordance with Part 26 of the U.K. Companies Act. In such event, the acquisition will be implemented on substantially the same terms, subject to appropriate amendments, as those which apply to the offer. A scheme of arrangement is a U.K. statutory, court-sanctioned procedure that may be used as an alternative to the offer if proposed by Cadbury to its shareholders with the agreement of Kraft Foods. In order to be implemented, a scheme of arrangement must be approved by the holders of Cadbury ordinary shares, including those represented by Cadbury ADSs, at a special meeting convened at the direction of the High Court of Justice in England and Wales. At the meeting, the scheme of arrangement must be approved by a majority in number of holders of Cadbury ordinary shares, including those represented by Cadbury ADSs, representing at least 75% in value of the Cadbury ordinary shares, including those represented by Cadbury ADSs, of those voting, whether in person or by proxy. After such approval, the court’s sanction of the scheme of arrangement will be sought and, if given, a copy of the court’s order must be filed with the U.K. Registrar of Companies, at which time the scheme of arrangement becomes effective. Once the court has sanctioned a scheme of arrangement, all holders of Cadbury ordinary shares, including those represented by Cadbury ADSs, are bound by it, whether or not they have voted in favor of it.

 

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The offer is also subject to the conditions and other terms of Appendix A to this prospectus/offer to exchange. You should read Appendix A carefully as it contains important information about the offer.

We have obtained from the SEC certain exemptive and no-action relief from applicable statutes and rules to allow the offer to proceed in the manner described in this prospectus/offer to exchange. In particular we have obtained no-action relief from:

 

•

the provisions of Rule 14e-5 under the Exchange Act to permit purchases of Cadbury ordinary shares outside of the offer;

and exemptive relief from:

 

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Rule 14d-7(a)(1) and Section 14(d)(5) of the Exchange Act to permit withdrawal rights to terminate at the end of the initial offer period and before the expiration of a voluntary extension thereof;

 

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Rules 14d-11(c) and (e) and 14e-1(c) under the Exchange Act to permit the payment for or return of tendered securities in the manner described in this prospectus/offer to exchange; and

 

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Rules 14d-10(a)(2) and (c) and 14d-11(b) and (f) under the Exchange Act to permit the conduct of the mix and match facility in the manner described in this prospectus/offer to exchange.

Procedures for Accepting the Offer

The procedure for tendering Cadbury ordinary shares, including those represented by Cadbury ADSs, into the offer varies depending on a number of factors, including whether you hold Cadbury ordinary shares or Cadbury ADSs, whether you possess physical certificates or hold your Cadbury ordinary shares, including those represented by Cadbury ADSs, in uncertificated or book-entry form and whether you hold them through an intermediary, such as a stockbroker, custodian bank or clearing system.

If you have already validly accepted the offer

If you have already validly accepted the offer and you do not wish to withdraw your acceptance, you do not have to take any further action. Cadbury ordinary shares and Cadbury ADSs validly tendered prior to the date hereof that are not validly withdrawn will constitute valid acceptances of the offer on the terms and conditions set forth in this prospectus/offer to exchange.

If you hold your Cadbury ordinary shares in certificated form (that is, not in CREST)

To accept the offer, you must complete the Form of Acceptance in accordance with the instructions set out below and on the Form of Acceptance. The Form of Acceptance should be returned as soon as possible and must be received by the Ordinary Share Exchange Agent at the address listed in the Form of Acceptance by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time and date to which the initial offer period may be extended. Further details on the procedures for acceptance, including representations and warranties you are making by accepting the offer, if you hold your Cadbury ordinary shares in certificated form, are set out in the Form of Acceptance and Part C (Form of Acceptance for Cadbury ordinary shares in certificated form) of Appendix A to this prospectus/offer to exchange. If you have any questions as to how to complete the Form of Acceptance, please call the information agent between 9:00 a.m. and 11:00 p.m. New York City time Monday to Friday or between 10:00 a.m. and 4:00 p.m. New York City time on Saturdays at the numbers listed on the back cover of this prospectus/offer to exchange. Additional Forms of Acceptance are available from the information agent upon request.

 

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To accept the offer on its basic terms

You must complete Box 1 of the Form of Acceptance by inserting the total number of Cadbury ordinary shares held by you in respect of which you wish to accept the offer whether or not you wish to make an election under the mix and match facility. In addition:

 

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an individual must sign Box 4A on the Form of Acceptance in the presence of a witness, who should also sign in accordance with the instructions printed on it; and

 

•

a company must execute Box 4B on the Form of Acceptance in accordance with the instructions printed on it.

If you do not insert a number in Box 1 of the Form of Acceptance, or if you insert in Box 1 a number that is greater than the number of Cadbury ordinary shares that you hold and you have signed Box 4A or 4B, you will be deemed to have accepted the basic terms of the offer in respect of your entire holding of Cadbury ordinary shares held in certificated form.

To make an election under the mix and match facility

To make an election under the mix and match facility you must first accept the offer in accordance with the instructions set out in the section of this prospectus/offer to exchange entitled “—To accept the offer on its basic terms.” Having done so, you must then complete EITHER Box 2A OR Box 2B of the Form of Acceptance. Under the mix and match facility, you may, subject to availability, elect to receive either additional shares of Kraft Foods common stock only or additional cash only in respect of some or all of your Cadbury ordinary shares. YOU MUST NOT THEREFORE COMPLETE BOTH BOX 2A AND BOX 2B. If you do so, you will be deemed not to have made a valid election under the mix and match facility and you will be deemed to have accepted the basic terms of the offer in respect of the number of Cadbury ordinary shares inserted or deemed to be inserted in Box 1.

If you wish to receive additional shares of Kraft Foods common stock in place of cash to which you would be entitled under the basic terms of the offer, you must put either “All” or the relevant number of Cadbury ordinary shares (which must be a whole number) in respect of which you wish to receive additional Kraft Foods common stock in Box 2A. If you wish to receive additional cash in place of the shares of Kraft Foods common stock to which you would otherwise be entitled under the basic terms of the offer, you must put either “All” or the relevant number of Cadbury ordinary shares (which must be a whole number) in respect of which you wish to receive additional cash in Box 2B.

If you make a mix and match election in respect of some, but not all of your Cadbury ordinary shares, you will be deemed to have accepted the basic terms of the offer in respect of the balance of your Cadbury ordinary shares.

The invalidity of an election under the mix and match facility will not affect the validity of an acceptance of the offer.

To make an election for U.S. dollars

To make an election to receive all of your cash consideration in U.S. dollars instead of pounds sterling, you must first accept the offer in accordance with the instructions set out in the section of this prospectus/offer to exchange entitled “—To accept the offer on its basic terms.” Having done so, you must then put “YES” in Box 3. You may not elect to receive payment of your cash consideration in a mixture of U.S. dollars and pounds sterling. If you put “YES” in Box 3 you will receive the whole of your cash consideration (including any additional cash to which you may become entitled under the mix and match facility) in U.S. dollars. Please note that any fluctuation in the U.S. dollar/pound sterling exchange rate will be at your own risk.

 

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The invalidity of a U.S. dollar election will not affect the validity of an acceptance of the offer or of an election under the mix and match facility.

Cadbury ordinary share certificates not readily available or lost

A completed, signed and, where required, witnessed Form of Acceptance should be accompanied by the relevant share certificates or other documents of title. If, for any reason, any of your share certificates or any other documents of title are not readily available or are lost, you should nevertheless complete, sign and return the Form of Acceptance as stated above so as to be received by the Ordinary Exchange Agent by mail or by hand (during normal business hours) at the address listed on the back cover of this prospectus/offer to exchange not later than 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time or date to which the offer may be extended. You should send with the Form of Acceptance any share certificates and any other documents of title that you may have available, accompanied by a letter stating that the remaining documents will follow as soon as possible or that you have lost one or more of your share certificates or other documents of title. You should then arrange for the relevant share certificates or other documents of title to be forwarded to the Ordinary Share Exchange Agent as soon as possible.

If you have lost any of your share certificates or other documents of title, you should write as soon as possible to Cadbury’s registrars, Computershare Investor Services PLC at The Pavilions, Bridgwater Road, Bristol, BS99 6ZZ, England, requesting a letter of indemnity for the lost share certificates or other documents of title that, when completed in accordance with the instructions given, should be returned by mail or by hand (during normal business hours) to the Ordinary Share Exchange Agent at the address listed on the back cover of this prospectus/offer to exchange.

If you hold your Cadbury ordinary shares in uncertificated form (that is, in CREST)

To accept the offer, you must take (or cause the taking of) the action set out below to transfer the Cadbury ordinary shares in respect of which you wish to accept the offer to the appropriate escrow balance(s), specifying the Ordinary Share Exchange Agent as the escrow agent as soon as possible. In any event, the TTE Instruction must settle by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time or date to which the offer may be extended. The input and settlement of a TTE Instruction will (subject to satisfying the requirements set out in Part B (Further Terms of the Offer) and Part D (Electronic Acceptance for Cadbury ordinary shares in uncertificated form) of Appendix A to this prospectus/offer to exchange) constitute an acceptance of the offer in respect of the number of Cadbury ordinary shares so transferred to escrow. If you are a CREST sponsored member, you should refer to your CREST sponsor before taking any action. Only your CREST sponsor will be able to send the required TTE Instruction to Euroclear in relation to your Cadbury ordinary shares. Further details of the procedures for acceptance if you hold your Cadbury ordinary shares in uncertificated form, including representations and warranties you are making by accepting the offer, are set out in Part D (Electronic Acceptance for Cadbury ordinary shares in uncertificated form) of Appendix A to this prospectus/offer to exchange.

To accept the offer on its basic terms

To accept the offer on its basic terms in respect of some or all of your Cadbury ordinary shares, you must send (or, if you are a CREST sponsored member, cause your CREST sponsor to send) to Euroclear a Basic Offer TTE Instruction (as defined below) in relation to such shares. A Basic Offer TTE Instruction to Euroclear must be properly authenticated in accordance with Euroclear’s specifications for transfers to escrow and must contain the following details:

 

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the ISIN number for the Cadbury ordinary shares, which is GB00B2PF6M7O;

 

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the number of Cadbury ordinary shares in respect of which you wish to accept the offer (i.e., the number of Cadbury ordinary shares to be transferred to escrow);

 

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your member account ID;

 

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your participant ID;

 

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the participant ID of the Ordinary Share Exchange Agent in its capacity as escrow agent (as described in the CREST Manual issued by Euroclear) (the “Escrow Agent”), which is 3RA34;

 

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the member account ID of the Escrow Agent for the offer on its basic terms, which is CADGBP01 (or CADUS01 if you are making a specific election in U.S. dollars);

 

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the intended settlement date. This should be as soon as possible and, in any event, not later than 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time or date to which the offer may be extended;

 

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the corporate action number of the offer. This is allocated by Euroclear and will be available on screen from Euroclear;

 

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input with a standard delivery instruction priority of 80; and

 

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a contact name and telephone number in the shared note field.

A “Basic Offer TTE Instruction” is a Transfer to Escrow instruction (as described in the CREST manual issued by Euroclear) in relation to Cadbury ordinary shares in uncertificated form meeting the requirements set out in this section of the prospectus/offer to exchange entitled “—To accept the offer on its basic terms.”

To make an election under the mix and match facility

To accept the offer and make an election under the mix and match facility, you should send (or if you are a CREST sponsored member, cause your CREST sponsor to send) a Mix and Match TTE Instruction (but not a Basic Offer TTE Instruction) to Euroclear in relation to such shares, in accordance with EITHER of the following two paragraphs. “Mix and Match TTE Instruction” means a Transfer to Escrow instruction (as described in the CREST manual issued by Euroclear) in relation to Cadbury ordinary shares in uncertificated form meeting the requirements set out in this section of the prospectus/offer to exchange entitled “—To make an election under the mix and match facility.”

If you wish to receive additional shares of Kraft Foods common stock, you should adopt the same procedures as apply in respect of a Basic Offer TTE Instruction, but with the following variations:

 

•

in the field relating to the number of Cadbury ordinary shares to be transferred to escrow, you should insert the number of shares in respect of which you wish to make an election under the mix and match facility for Kraft Foods common stock only; and

 

•

the member account ID of the Escrow Agent for such election is CADGBP02 (or CADUSD02 if you are making a specific election to receive any cash consideration (as a result of your election for shares of Kraft Foods common stock only not being satisfied in full) in U.S. dollars).

If you wish to receive additional cash in place of the shares of Kraft Foods common stock to which you would otherwise be entitled under the basic terms of the offer, you should adopt the same procedures as apply in respect of a Basic Offer TTE Instruction, but with the following variations:

 

•

in the field relating to the number of Cadbury ordinary shares to be transferred to escrow, you should insert the number of shares in respect of which you wish to make an election under the mix and match facility for cash only; and

 

•

the member account ID of the Escrow Agent for such election is CADGBP03 (or CADUSD03 if you are making a specific election to receive any cash consideration in U.S. dollars).

 

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If you make a mix and match election in respect of some, but not all, of your Cadbury ordinary shares, you will receive the basic terms of the offer in respect of the balance of your Cadbury ordinary shares.

You cannot elect to receive additional Kraft Foods common stock and additional cash. If you do so, you will be deemed not to have made a valid election under the mix and match facility.

Validity of acceptances

Holders of Cadbury ordinary shares in uncertificated form who wish to accept the offer should note that a TTE instruction will only be a valid acceptance of that offer as at the relevant closing date if it has settled on or before 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010.

Deposits of Cadbury ordinary shares into, and withdrawals of Cadbury ordinary shares from, CREST

Normal CREST procedures (including timings) apply in relation to any Cadbury ordinary shares that are, or are to be, converted from uncertificated to certificated form, or from certificated to uncertificated form, during the course of the offer (whether any such conversion arises as a result of a transfer of Cadbury ordinary shares or otherwise). Cadbury shareholders who are proposing to so convert any such shares should ensure that the conversion procedures are implemented in sufficient time to enable the person holding or acquiring the Cadbury ordinary shares as a result of the conversion to take all necessary steps in connection with an acceptance of the offer (in particular, as regards delivery of share certificates and any other documents of title or transfers to an escrow balance as described above) prior to 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010.

If you hold your Cadbury ADSs in certificated form (that is, you hold a Cadbury ADR)

To accept the offer, you should complete, sign and send the ADS Letter of Transmittal (or a manually signed facsimile thereof), with any required signature guarantees, together with your Cadbury ADRs and any other documents required by the ADS Letter of Transmittal, to the ADS Exchange Agent at the address listed on the back cover of this prospectus/offer to exchange as soon as possible. The ADS Exchange Agent must receive these documents by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time or date to which the offer may be extended. Further details on the procedures for acceptance, including representations and warranties you are making by accepting the offer are set out in the ADS Letter of Transmittal and Part E (Acceptance for Cadbury ordinary shares represented by Cadbury ADSs) of Appendix A to this prospectus/offer to exchange.

In general, signatures on letters of transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) that is a participant in the Securities Transfer Association Medallion Program, the New York Stock Exchange Medallion Program or the Stock Exchange Medallion Program (an “Eligible Institution”). However, no signature guarantee is required on the ADS Letter of Transmittal if (a) the ADS Letter of Transmittal is signed by the registered holder(s) of the Cadbury ADSs evidenced by Cadbury ADRs in respect of which the offer is being accepted and such holder(s) has not completed either the box entitled “Special Payment Instructions” or the box entitled “Special Delivery Instructions” on the ADS Letter of Transmittal or (b) the offer is being accepted in respect of such Cadbury ADSs for the account of an Eligible Institution.

If the Cadbury ADSs are registered in the name of a person other than the person who signs the ADS Letter of Transmittal, then the tendered Cadbury ADRs must be endorsed or accompanied by appropriate stock powers, signed exactly as the name of the registered holder or holders appear(s) on Cadbury ADRs evidencing such Cadbury ADSs, with the signatures on such Cadbury ADRs or stock powers to be guaranteed as described above.

If you wish to tender fewer than all of the Cadbury ADSs evidenced by Cadbury ADRs delivered to the ADS Exchange Agent, you must indicate this in the ADS Letter of Transmittal by completing the box entitled

 

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“Description of Cadbury ADSs Tendered.” In such case, except as otherwise provided in the ADS Letter of Transmittal, a new Cadbury ADR for the untendered Cadbury ADSs will be sent to you, unless otherwise provided in the appropriate box entitled “Special Delivery Instructions” on the ADS Letter of Transmittal, as promptly as practicable following the date on which the offer becomes or is declared wholly unconditional. All Cadbury ADSs delivered to the ADS Exchange Agent will be deemed to have been tendered unless otherwise indicated.

If any Cadbury ADR evidencing Cadbury ADSs has been lost, destroyed or stolen you should contact the ADS Depositary to obtain the proper paperwork required in order to replace your ADS certificate(s). JPMorgan Chase Bank, N.A. can be reached directly at (800) 990-1135, or from outside the United States at (651) 453-2128, or by contacting Global Invest Direct at (800) 428-4237.

If you hold your Cadbury ADSs through an intermediary in book-entry form (that is, you hold your Cadbury ADSs in a brokerage or custodian account and through a clearing system)

If you hold your Cadbury ADSs through a broker, dealer, commercial bank, trust company or similar institution, you should follow the instructions sent to you by that institution. To accept the offer, your intermediary should deliver your Cadbury ADSs by book-entry transfer made to the account maintained by the ADS Exchange Agent at the Depository Trust Company, which we refer to as DTC or the Book-Entry Transfer Facility, and deliver an Agent’s Message. These steps should be completed by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time or date to which the offer may be extended.

The ADS Exchange Agent has established an account at the Book-Entry Transfer Facility with respect to Cadbury ADSs for the purposes of the offer. Any financial institution that is a participant in the Book-Entry Transfer Facility’s systems may make book-entry delivery of Cadbury ADSs by causing the Book-Entry Transfer Facility to transfer such Cadbury ADSs into the ADS Exchange Agent’s account at the Book-Entry Transfer Facility’s Automated Tender Offer Program (“ATOP”) in accordance with applicable ATOP procedures for the transfer. An “Agent’s Message” delivered in lieu of the ADS Letter of Transmittal is a message transmitted by the Book-Entry Transfer Facility to, and received by, the ADS Exchange Agent as part of a confirmation of a book-entry transfer. The message states that the Book-Entry Transfer Facility has received an express acknowledgement from the Book-Entry Transfer Facility participant tendering the Cadbury ADSs that such participant has received and agrees to be bound by the terms of the ADS Letter of Transmittal and the offer. Further details on the procedures for acceptance, including representations and warranties you are making by accepting the offer, are set out in the ADS Letter of Transmittal and Part E (Acceptance for Cadbury ordinary shares represented by Cadbury ADSs) of Appendix A to this prospectus/offer to exchange.

If you hold your Cadbury ADSs through direct registration on the books and records of the ADS Depositary (that is, you hold your Cadbury ADSs in uncertificated form in an ADS holder account at the ADS Depositary)

To accept the offer, you should convert your direct registration Cadbury ADSs into certificated Cadbury ADSs and follow the acceptance procedures for certificated Cadbury ADSs described above, or arrange for your direct registration Cadbury ADSs to be transferred to a brokerage or custodian account and follow the acceptance procedures for book-entry transfer described above, in each case, as soon as possible and, in any event, so as to be received by the ADS Exchange Agent (in the case of certificated Cadbury ADSs, at the address listed on the back cover of this prospectus/offer to exchange) by 8:00 a.m. New York City time (1:00 p.m. London time) on February 2, 2010, or such later time or date to which the offer may be extended. The conversion of direct registration Cadbury ADSs into certificated Cadbury ADSs and the transfer of direct registration Cadbury ADSs to a brokerage or custodian account may be subject to processing delays.

Cadbury ADS holders transferring direct registration Cadbury ADSs to a brokerage or custodian account may also incur fees charged by the ADS Depositary pursuant to the ADS deposit agreement or by their broker or

 

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custodian. You are encouraged to inquire with the ADS Depositary and your broker or custodian regarding the amount and applicability of any such fees. JPMorgan Chase Bank, N.A. can be reached directly at (800) 990-1135, or from outside the United States at (651) 453-2128, or by contacting Global Invest Direct at (800) 428-4237.

Effects of tendering Cadbury ADSs

The method of delivery of Cadbury ADSs evidenced by Cadbury ADRs and all other required documents is at the option and risk of the tendering holder of Cadbury ADSs. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery.

No alternative, conditional or contingent acceptance will be accepted and no fractional Cadbury ADSs will be purchased. All accepting holders of Cadbury ADSs, by execution of the ADS Letter of Transmittal (or a manually signed facsimile thereof) (or, in the case of a book-entry transfer, an Agent’s Message), waive any right to receive any notice of the acceptance of their Cadbury ADSs for payment.

The offer in respect of Cadbury ADSs evidenced by Cadbury ADRs shall be deemed (without any further action by the ADS Depositary or the ADS Exchange Agent) accepted upon delivery of the ADS Letter of Transmittal (or a manually signed facsimile thereof), Cadbury ADRs evidencing tendered Cadbury ADSs and any other required documents to the ADS Exchange Agent, or, in the case of a book-entry holder, book-entry transfer of Cadbury ADSs to the account maintained by the ADS Exchange Agent at the Book-Entry Transfer Facility and delivery of an Agent’s Message. The acceptance of the offer by a tendering holder of Cadbury ADSs pursuant to the procedures described above, subject to the withdrawal rights described below, will constitute a binding agreement between the tendering holder of Cadbury ADSs and Kraft Foods upon the terms and subject to the conditions of the offer. Accordingly, references in this prospectus/offer to exchange and in the ADS Letter of Transmittal to a tender of Cadbury ADSs shall be construed to mean acceptance of the offer in respect of the shares underlying such Cadbury ADSs upon the terms and subject to the conditions of the offer. If acceptance has been made in respect of the Cadbury ADSs, then a separate acceptance in respect of the Cadbury ordinary shares represented by such Cadbury ADSs may not be made.

Conversion of Cadbury ADSs

If you tender your Cadbury ADSs in the offer, and the offer becomes or is declared wholly unconditional, the ADS Exchange Agent, as your representative, will, upon the request of Kraft Foods, instruct the ADS Depositary on your behalf to withdraw the Cadbury ordinary shares represented by your tendered Cadbury ADSs and to deliver these Cadbury ordinary shares to the account or accounts designated by the ADS Exchange Agent. At such time, the ADS Depositary will assess you a withdrawal fee of $0.05 per Cadbury ADS. This fee will be deducted from the cash consideration payable to you. If you elect to receive additional shares of Kraft Foods common stock under the mix and match facility and, as a result, the cash consideration otherwise payable to you is not sufficient to cover this fee, your mix and match election will be adjusted to the extent necessary such that the cash consideration payable to you is sufficient to cover the amount of the fee. If the offer lapses or does not become or is not declared wholly unconditional, you will not be assessed any such fee.

Additional information

If you hold your Cadbury ordinary shares or Cadbury ADSs through one or more intermediaries, such as a stockbroker, custodian bank or clearing system, you should accept the offer by following the instructions that your applicable intermediary has established to accept the offer on your behalf. The custodian bank or stockbroker may set an earlier deadline for receiving instructions from Cadbury securityholders in order to permit the custodian bank or stockbroker to communicate acceptances to the Ordinary Share Exchange Agent or the ADS Exchange Agent in a timely manner. In order for your acceptance to count toward the minimum acceptance condition, you may have to act prior to the announced deadline for acceptance.

 

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If you are in any doubt as to the procedure for acceptance or if you require additional Forms of Acceptance or ADS Letters of Transmittal, please call the information agent toll-free in the United States at (800) 868-1391, or from outside the United States at (212) 806-6859. Please note that, for legal reasons, the information agent will be unable to give advice on the merits of the offer or to provide legal, financial or taxation advice on the contents of this prospectus/offer to exchange.

Payment of Cash and Stock Consideration

Currency

If you tender your Cadbury ordinary shares in the offer, you will receive the cash portion of the offer consideration for your Cadbury ordinary shares in pounds sterling, unless you specifically elect to receive it in U.S. dollars. If you tender your Cadbury ADSs in the offer, you will receive the cash portion of the offer consideration for your Cadbury ADSs in U.S. dollars, unless you specifically elect to receive it in pounds sterling. Holders of Cadbury ADSs who want to receive the cash consideration into their brokerage account must not elect to receive pounds sterling.

If you receive the cash portion of your consideration in U.S. dollars, the cash amount payable in pounds sterling to which you would otherwise be entitled pursuant to the offer will be paid (net of all relevant fees and expenses) in U.S. dollars based on the exchange rate obtainable on the spot market in London on the date the cash consideration is made available by Kraft Foods to the Ordinary Share Exchange Agent or the ADS Exchange Agent for delivery in respect of your Cadbury ordinary shares or Cadbury ADSs. The actual amount of U.S. dollars received will depend on this exchange rate.

Timing of Consideration

The settlement with respect to the offer will be consistent with U.K. practice, which differs from U.S. domestic tender offer procedures in certain material respects, particularly with regard to the date of payment.

Subject to the offer becoming or being declared wholly unconditional, the settlement of the consideration to which any Cadbury securityholder is entitled will be effected by the issuance of checks, book-entry account statements, crediting of CREST accounts and/or transfer through DTC:

 

•

in the case of complete acceptances received by the date on which the offer becomes or is declared wholly unconditional, within 14 calendar days of such date; and

 

•

in the case of complete acceptances received after such date but while the offer remains open for acceptance, within 14 calendar days of receipt.

Cadbury Ordinary Shares and Cadbury ADSs in Certificated Form

A book-entry account statement reflecting ownership of shares of Kraft Foods common stock and a check representing the cash consideration, as applicable, will be mailed by first class mail (or such other method as may be approved by the U.K. Takeover Panel) to Cadbury securityholders who accept the offer with respect to Cadbury ordinary shares in certificated form and Cadbury ADSs.

Cadbury Ordinary Shares in Uncertificated Form (that is, in CREST)

Cash consideration to which the accepting Cadbury shareholder is entitled will be paid by means of a CREST payment in favor of an accepting Cadbury shareholder’s payment bank, in accordance with CREST payment arrangements to each Cadbury shareholder who accepts the offer with respect to Cadbury ordinary shares held in CREST. In addition, we will instruct our transfer agent to credit each such Cadbury shareholder’s shares of Kraft Foods common stock through DTC to the securities deposit account of CREST International

 

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Nominee, as nominee for CREST Depository Limited. CREST Depository Limited will then issue such Cadbury shareholder’s CDIs through CREST to the Ordinary Share Exchange Agent to deliver to the securities deposit account in CREST in which such Cadbury shareholder previously held his or her Cadbury ordinary shares. We reserve the right to settle all or any part of the consideration in the manner described in the section of this prospectus/offer to exchange entitled “—Cadbury Ordinary Shares and Cadbury ADSs in Certificated Form” above, if, for any reason, we wish to do so.

If a Cadbury shareholder elects to receive his or her cash consideration in U.S. dollars and CREST rejects the U.S. dollar payment because the shareholder does not have a U.S. dollar bank account linked to his or her participant ID or holding of Cadbury ordinary shares or for any other reason, that shareholder will receive the cash payment by check.

Cadbury ADSs Tendered by Means of Book-Entry Transfer

If a Cadbury ADS holder tenders his or her Cadbury ADSs in the offer to the ADS Exchange Agent by means of DTC book-entry confirmation, the ADS Exchange Agent will deliver the applicable whole number of shares of Kraft Foods common stock and cash consideration to the Book-Entry Transfer Facility for delivery to the accounts of the applicable Book-Entry Transfer Facility participant who accepted the offer and tendered the Cadbury ADSs on the tendering Cadbury ADS holder’s behalf.

Ownership of Kraft Foods After Completion of the Offer

We estimate that upon consummation of the offer and any compulsory acquisition, former Cadbury securityholders and existing Kraft Foods shareholders will own approximately 15.2% and 84.8%, respectively, of the shares of Kraft Foods common stock outstanding immediately after the offer is completed. Our estimate assumes that:

 

•

all of the outstanding Cadbury ordinary shares, including those represented by Cadbury ADSs, the total number of which is 1,373,872,386 as of January 18, 2010 (as publicly reported by Cadbury), are exchanged for shares of Kraft Foods common stock pursuant to the terms of the offer set forth in this prospectus/offer to exchange and that no Kraft Foods shareholders hold Cadbury ordinary shares (including those represented by Cadbury ADSs); and

 

•

all 39,478,935 Cadbury ordinary shares that could be issued to satisfy the exercise and vesting of options and awards under Cadbury share schemes (assuming exercise and vesting of such options and awards in full) as at the close of business on January 14, 2010 (as disclosed in Cadbury’s second defense document filed with the SEC on January 12, 2010, as updated by figures disclosed on behalf of Cadbury to our financial advisors on January 15, 2010 for the purposes of Note 3 on Rule 10 of the U.K. Takeover Code), are exercised for Cadbury ordinary shares and are exchanged for shares of Kraft Foods common stock pursuant to the terms of the offer described in this prospectus/offer to exchange.

Certain Material U.S. Federal Income and Estate Tax Consequences

The following is a summary of certain material U.S. federal income and estate tax consequences of the offer. This summary is for general information purposes only and applies only to holders that hold their Cadbury ordinary shares or Cadbury ADSs as capital assets as defined for U.S. federal income tax purposes. This summary does not address all aspects of U.S. federal income taxation that may be relevant to a particular person in light of its individual circumstances, or the U.S. federal income tax consequences applicable to a person that is subject to special rules, such as:

 

•

a broker or dealer in securities or currencies;

 

•

a bank or other financial institution;

 

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•

an insurance company;

 

•

a tax-exempt organization;

 

•

a person that holds or will hold their Cadbury ordinary shares, Cadbury ADSs or Kraft Foods common stock or pounds sterling received, as part of a “straddle,” “hedge,” “integrated” or “conversion” transaction;

 

•

a controlled foreign corporation;

 

•

a passive foreign investment company;

 

•

a corporation that accumulates earnings to avoid U.S. federal income tax;

 

•

a U.S. holder (as defined below) whose functional currency is not the U.S. dollar;

 

•

a real estate investment trust or regulated investment company;

 

•

a United States expatriate;

 

•

a person that owns or has owned (or that is deemed to have owned) 10% or more (by voting power or value) of the stock of Cadbury; or

 

•

a person who acquired Cadbury ordinary shares or Cadbury ADSs upon the exercise of an employee share option, employee share purchase right or otherwise in connection with the provision of services.

This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed Treasury regulations under the Code, published rulings and court decisions, all as currently in effect. These authorities are subject to change, possibly on a retroactive basis. Except as specifically set forth herein, this summary does not describe any U.S. state, local or foreign income or other tax consequences of the offer.

For purposes of this section of this prospectus/offer to exchange entitled “—Certain Material U.S. Federal Income and Estate Tax Consequences,” a “U.S. holder” is a beneficial owner of Cadbury ordinary shares or Cadbury ADSs (other than an entity, including a partnership or arrangement classified as a partnership for U.S. federal income tax purposes) that is, for U.S. federal income tax purposes:

 

•

an individual citizen or resident of the United States;

 

•

a corporation created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

 

•

an estate the income of which is subject to U.S. federal income tax regardless of its source; or

 

•

a trust, if (a) a court within the United States can exercise primary supervision over its administration and one or more U.S. persons are authorized to control all of the substantial decisions of that trust, or (b) the trust was in existence on August 20, 1996, and validly elected to continue to be treated as a United States person (as defined under the Code).

For purposes of this discussion, a “non-U.S. holder” is a beneficial owner of Cadbury ADSs that is not a U.S. holder or an entity, including a partnership, or arrangement classified as a partnership for U.S. federal income tax purposes.

 

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If an entity or arrangement that is treated as a partnership for U.S. federal income tax purposes holds Cadbury ordinary shares or Cadbury ADSs, the U.S. federal income tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the partnership. A partner in such an entity or arrangement holding Cadbury ordinary shares or Cadbury ADSs should consult its tax advisor with regard to the U.S. federal income tax treatment of the offer.

CADBURY SECURITYHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE PARTICULAR U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO THEM OF THE OFFER AND OF THE OWNERSHIP AND DISPOSITION OF KRAFT FOODS COMMON STOCK, AND THE TAX CONSEQUENCES UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.

Consequences to U.S. Holders

Consequences of Participation in the Offer

A U.S. holder will generally recognize gain or loss upon the receipt of Kraft Foods common stock and cash, whether paid in pounds sterling or U.S. dollars, in exchange for such U.S. holder’s Cadbury ordinary shares or Cadbury ADSs pursuant to the offer in an amount equal to the difference between: (a) the sum of (i) the fair market value of such Kraft Foods common stock received; and (ii) the amount of U.S. dollars, if any, received, or, in the case of cash received in pounds sterling, the U.S. dollar value of such determined based on the spot rate on the date payment is received; and (b) the U.S. holder’s adjusted tax basis in the Cadbury ordinary shares or Cadbury ADSs exchanged.

Gain or loss must be calculated separately for each block of Cadbury ordinary shares or Cadbury ADSs (i.e., shares acquired at the same cost in a single transaction) exchanged pursuant to the offer. Such gain or loss will generally be capital gain or loss. Any such gain or loss will generally be long-term capital gain or loss if the U.S. holder’s holding period for such Cadbury ordinary shares or Cadbury ADSs exceeds one year at the time of the exchange. Long-term capital gains of non-corporate U.S. holders are currently subject to reduced rates of taxation. The deductibility of capital losses is subject to limitations. Gain or loss, if any, recognized by a U.S. holder will generally be treated as U.S.-source income or loss for U.S. foreign tax credit purposes. U.S. holders should consult their own tax advisors regarding the potential applicability of special sourcing rules to them.

The discussion set forth in the preceding paragraph assumes that Cadbury does not constitute, and has not in the past constituted, a passive foreign investment company for U.S. federal income tax purposes. If this assumption is incorrect, the U.S. federal income tax consequences to a U.S. holder of participation in the offer will differ from those set forth above.

A U.S. holder’s tax basis in any pounds sterling received will equal the U.S. dollar value of those pounds sterling using the same spot rate used to determine the amount of gain or loss recognized. A U.S. holder’s initial tax basis in the Kraft Foods common stock will be the fair market value of such Kraft Foods common stock on the date of receipt. The holding period for the Kraft Foods common stock will begin on the day following the day the offer closes.

Conversion of Pounds Sterling into U.S. Dollars

A U.S. holder that subsequently converts pounds sterling received pursuant to the offer into U.S. dollars will generally recognize exchange gain or loss equal to the difference between the U.S. holder’s basis in the pounds sterling (as described above) and the U.S. dollars received in exchange therefor. Exchange gain or loss will generally be treated as U.S.-source ordinary income or loss.

Ownership of Kraft Foods Common Stock

Distributions made by us on the Kraft Foods common stock will be treated as dividends for U.S. federal income tax purposes to the extent paid out of our current or accumulated earnings and profits, as determined for

 

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U.S. federal tax purposes. The gross amount of any distributions treated as dividends for U.S. federal income tax purposes will be included in a U.S. holder’s income as ordinary dividend income. With respect to dividends received by non-corporate U.S. holders, for taxable years beginning before January 1, 2011, such dividends are generally subject to tax at a maximum U.S. federal income tax rate of 15%, provided certain holding period requirements are satisfied. Dividends received by a corporation may be eligible for the dividends-received deduction, subject to applicable limitations.

To the extent that a distribution made by us exceeds our current or accumulated earnings and profits, the distribution will be treated first as a return of basis, and, thereafter, as gain from the sale or exchange of Kraft Foods common stock. For more information please see the section of this prospectus/offer to exchange entitled “—Sale, Exchange or Other Taxable Dispositions of Kraft Foods Common Stock.”

Sale, Exchange or Other Taxable Dispositions of Kraft Foods Common Stock

Upon the sale, exchange or other taxable disposition of Kraft Foods common stock, a U.S. holder will generally recognize capital gain or loss equal to the difference between (a) the amount of cash and the fair market value of any property received upon such sale, exchange or disposition and (b) such U.S. holder’s adjusted tax basis in its Kraft Foods common stock. Such capital gain or loss will be long-term capital gain or loss if the U.S. holder’s holding period in the Kraft Foods common stock exceeds one year at the time of the disposition. Long-term capital gains recognized by certain non-corporate U.S. holders are currently subject to reduced rates of taxation. The deductibility of capital losses is subject to limitations.

Information Reporting and Backup Withholding

In general, in the case of a non-corporate U.S. holder, Kraft Foods and other payors must report to the Internal Revenue Service (the “IRS”) amounts paid pursuant to the offer, dividends paid on the Kraft Foods common stock and proceeds received from a disposition of Kraft Foods common stock. Backup withholding may also apply to any payments if the recipient of the payment fails to supply an accurate taxpayer identification number or otherwise fails to comply with applicable U.S. information reporting or certification requirements. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or credit against a U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Consequences to Non-U.S. Holders

Consequences of Participation in the Offer

A non-U.S. holder will not generally be subject to U.S. federal income tax on the exchange of his or her Cadbury ADSs pursuant to the offer unless:

 

•

the gain is effectively connected with a trade or business of the non-U.S. holder in the United States and, if certain tax treaties apply, is attributable to a permanent establishment in the United States maintained by such non-U.S. holder (in which case, the gain will generally be subject to U.S. federal income tax on a net income basis in the manner applicable to a United States person (as defined under the Code), and, if such non-U.S. holder is a foreign corporation, a branch profits tax equal to 30% (or lower applicable treaty rate) on its effectively connected earnings and profits, as determined under the Code may also apply); or

 

•

in the case of an individual non-U.S. holder, the individual is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met (in which case, the gain will be subject to a flat 30% tax, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States).

 

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A non-U.S. holder that is subject to U.S. federal income tax on the exchange of its Cadbury ADSs under the rules set forth above and receives cash in the form of U.S. dollars should consult his or her own tax advisor regarding the U.S. federal income tax consequences of the receipt of U.S. dollars.

Ownership of Kraft Foods Common Stock

Dividends paid by us will generally be subject to U.S. federal withholding tax at a rate of 30%, or such lower rate provided by an applicable income tax treaty, of the gross amount of the dividend.

Dividends that are effectively connected with the conduct of a trade or business by a non-U.S. holder in the United States and, if an income tax treaty applies, attributable to a permanent establishment in the United States, are subject to tax on a net income basis at applicable U.S. federal graduated income tax rates. In such case, we will not have to withhold U.S. federal withholding tax on dividends paid to a non-U.S. holder if such non-U.S. holder complies with applicable certification and disclosure requirements. In addition, a non-U.S. holder that is a foreign corporation may be subject to a branch profits tax at a rate of 30%, or such lower rate provided by an applicable income tax treaty.

A non-U.S. holder that wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will be required (a) to complete IRS Form W-8BEN (or other applicable form) and certify under penalties of perjury that such shareholder is not a U.S. person as defined under the Code and is eligible for treaty benefits or (b) if the Kraft Foods common stock is held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable Treasury regulations. Special certification and other requirements apply to non-U.S. holders that are pass-through entities rather than corporations or individuals. A non-U.S. holder eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS.

Sale, Exchange or Other Taxable Disposition of Kraft Foods Common Stock

A non-U.S. holder will recognize gain or loss on the sale, exchange or other taxable disposition of Kraft Foods common stock equal to the difference between (a) the amount of cash plus the fair market value of other property received in exchange for Kraft Foods common stock and (b) the non-U.S. holder’s tax basis in the Kraft Foods common stock. A non-U.S. holder that obtained its Kraft Foods common stock in the offer will have a tax basis in the Kraft Foods common stock equal to the fair market value of the Kraft Foods common stock on the date of receipt. A non-U.S. holder will not generally be subject to U.S. federal income tax on gain recognized on the sale, exchange or other taxable disposition of Kraft Foods common stock unless any one or more of the following is true:

 

•

the gain is effectively connected with a trade or business of the non-U.S. holder in the United States and, if certain tax treaties apply, is attributable to a permanent establishment in the United States maintained by such non-U.S. holder (in which case, the gain will generally be subject to U.S. federal income tax on a net income basis in the manner applicable to a United States person, and, if such non-U.S. holder is a foreign corporation, the branch profits tax described above may also apply);

 

•

in the case of an individual non-U.S. holder, the individual is present in the United States for 183 or more days in the taxable year of the disposition and certain other conditions are met (in which case, the gain will be subject to a flat 30% tax, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States); or

 

•

we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes and certain other requirements are met. We believe that we are not currently, and do not anticipate becoming in the future, a United States real property holding corporation.

 

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U.S. Federal Estate Tax

Kraft Foods common stock held by an individual non-U.S. holder at the time of his or her death will generally be included in such non-U.S. holder’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax or other treaty provides otherwise.

Information Reporting and Backup Withholding

We must report to the IRS and to each non-U.S. holder the amounts paid to non-U.S. holders pursuant to the offer. In addition, we must report annually to the IRS and to each non-U.S. holder, the amount of dividends paid to such non-U.S. holder on the Kraft Foods common stock and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such amounts may also be made available to the tax authorities in the country in which the non-U.S. holder resides under the provisions of an applicable income tax treaty. A non-U.S. holder will be subject to backup withholding for amounts paid to such non-U.S. holder unless such holder certifies under penalties of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that such holder is a United States person as defined under the Code), or such non-U.S. holder otherwise establishes an exemption.

Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale of Kraft Foods common stock within the United States or conducted through certain U.S.-related financial intermediaries, unless the beneficial owner certifies under penalties of perjury that it is a non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

Appraisal/Dissenters’ Rights

No dissenters’ or appraisal rights are available in connection with the offer. However, in the event that we implement the compulsory acquisition procedures referred to above, Cadbury securityholders who have not participated in the offer and whose Cadbury ordinary shares, including those represented by Cadbury ADSs, are to be compulsorily acquired, will have certain rights under the U.K. Companies Act to object to the U.K. court to Kraft Foods compulsorily acquiring their Cadbury ordinary shares, including those represented by Cadbury ADSs.

Plans for Cadbury

The purpose of the offer is to acquire control of, and ultimately the entire interest in, Cadbury. If, and to the extent that we acquire control of Cadbury, it would become our majority owned or wholly owned subsidiary. We will then be entitled to replace the Cadbury board of directors. Following completion of the offer, joint teams will be established to conduct integration process reviews to assess how best to leverage the combined company’s strategic position and resources. These teams will look at all aspects of the combined company’s business, including manufacturing, logistics, research and development, selling, marketing and administrative functions. We expect that this review will result in the streamlining of operations and some consolidations in certain areas of the business of the combined company. Within the U.K., we believe we would be in a position to continue to operate the Somerdale facility, which is currently planned to be closed, and invest in Bournville, thereby preserving U.K. manufacturing jobs. In addition, we have given assurances to the directors of Cadbury that, on the offer becoming or being declared wholly unconditional, the existing contractual employment rights, including pension rights, of all employees of Cadbury and its subsidiaries will be fully safeguarded.

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developments. Such changes may include, among other things, changes in Cadbury’s business by virtue of the combination, corporate structure, assets, properties, marketing strategies, capitalization, the composition of the Cadbury board of directors, management, personnel or dividend policy and changes to Cadbury’s articles of association.

Except as indicated in this prospectus/offer to exchange, neither we nor any of our subsidiaries have any current plans or proposals that relate to or would result in (a) any extraordinary transaction, such as a merger, reorganization or liquidation of Cadbury or any of its subsidiaries, (b) any purchase, sale or transfer of a material amount of assets of Cadbury or any of its subsidiaries, (c) any material change in the present dividend rate or policy, or indebtedness or capitalization of Cadbury or any of its subsidiaries, (d) any change in the current board of directors or management of Cadbury or any change to any material term of the employment contract of any executive officer of Cadbury, (e) any other material change in Cadbury’s corporate structure or business, (f) any class of equity security of Cadbury being delisted from a national stock exchange or ceasing to be authorized to be quoted in an automated quotation system operated by a national securities association or (g) any class of equity securities of Cadbury becoming eligible for termination of registration under Section 12(g)(4) of the Exchange Act.

Certain Effects of the Offer

Stock Exchange Listings

If we acquire 75% of the voting rights of Cadbury, we intend to cause Cadbury to apply for cancellation of the listing of the Cadbury ordinary shares on the U.K. Official List and the trading of the Cadbury ordinary shares on the LSE’s main market for listed securities. If the offer becomes or is declared wholly unconditional, we intend, subject to the rules of the NYSE, to cause Cadbury to apply for the delisting of the Cadbury ADSs from the NYSE and to terminate Cadbury’s ADS program and related deposit agreement. We also intend, following the offer becoming or being declared wholly unconditional and after the delisting of the Cadbury ordinary shares and Cadbury ADSs, to cause Cadbury to be re-registered as a private company under the relevant provisions of the U.K. Companies Act.

A notice period of not less than 20 U.K. business days prior to the cancellation of listing on the U.K. Official List and cancellation of trading on the LSE’s main market for listed securities will commence upon our attaining 75% or more of the voting rights described above or on the first date of issue of the compulsory acquisition notices under the U.K. Companies Act. No fewer than ten days before filing the necessary form with the SEC to delist the Cadbury ADSs from the NYSE, we must request that Cadbury notify the NYSE, and contemporaneously publish notice, that it intends to withdraw the Cadbury ADSs from listing. Once the necessary form is filed with the SEC, it becomes effective in ten days. Delisting is likely to reduce significantly the liquidity and marketability of any Cadbury ordinary shares, including those represented by Cadbury ADSs, in respect of which the offer has not been accepted.

Registration Under the Exchange Act

The Cadbury ADSs and the Cadbury ordinary shares (not for trading but in support of the Cadbury ADSs) are currently registered under the Exchange Act. Registration of such Cadbury ordinary shares and Cadbury ADSs may be terminated upon application of Cadbury to the SEC if, among other conditions, Cadbury ADSs are not listed on a national securities exchange and are not held by 300 or more beneficial owners in the United States or trading in them falls below certain average daily trading volume benchmarks. If, as a result of the purchase of Cadbury ordinary shares represented by Cadbury ADSs, pursuant to the offer and prior to completing the compulsory acquisition, Cadbury is not required to maintain registration of Cadbury ordinary shares and Cadbury ADSs under the Exchange Act, we may seek to have Cadbury terminate the registration of the Cadbury ordinary shares, including those represented by Cadbury ADSs, under the Exchange Act. Termination of registration of Cadbury ADSs and Cadbury ordinary shares under the Exchange Act would substantially reduce

 

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the information required to be furnished by Cadbury to holders of Cadbury ADSs and to the SEC and would make certain provisions of the Exchange Act, such as the requirements of Rule 13e-3 thereunder with respect to “going private” transactions, no longer applicable to Cadbury. Furthermore, “affiliates” of Cadbury and persons holding “restricted securities” of Cadbury may be deprived of the ability to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act.

Market Effect

Our acquisition of Cadbury ordinary shares, including those represented by Cadbury ADSs, pursuant to the offer will reduce the number of Cadbury ordinary shares and Cadbury ADSs that might otherwise trade publicly, which could adversely affect the liquidity and market value of the remaining Cadbury ordinary shares and Cadbury ADSs held by the public. The extent of the public market for Cadbury ordinary shares and Cadbury ADSs, and the availability of quotations reported in the over-the-counter market depends upon the number of holders of Cadbury ordinary shares and Cadbury ADSs, the aggregate market value of the Cadbury ordinary shares and Cadbury ADSs remaining at such time, the interest of maintaining a market in the shares on the part of any securities firms and other factors.

Margin Regulations

Cadbury ordinary shares and Cadbury ADSs are currently “margin securities,” as such term is defined under the rules of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”), which has the effect, among other things, of allowing brokers to extend credit using such securities as collateral. Depending upon factors similar to those described above regarding listing and market quotations, following the offer, it is possible that Cadbury ordinary shares and Cadbury ADSs might no longer constitute “margin securities” for purposes of the margin regulations of the Federal Reserve Board, in which event such Cadbury ordinary shares or Cadbury ADSs could no longer be used as collateral for loans made by brokers. In addition, if registration of Cadbury ordinary shares or Cadbury ADSs under the Exchange Act were terminated, Cadbury ordinary shares or Cadbury ADSs, as applicable, would no longer constitute “margin securities.”

Financing of the Offer; Source and Amount of Funds

Assuming all of the outstanding Cadbury ordinary shares, including those represented by Cadbury ADSs, and assuming the exercise of all share options and vesting of all share awards over Cadbury ordinary shares held under the Cadbury share schemes, are tendered into the offer, we would be obligated to pay an aggregate amount of approximately £7.1 billion in cash to the holders of those Cadbury ordinary shares and Cadbury ADSs. This amount will be lower if less than 100% of the currently outstanding Cadbury ordinary shares or Cadbury ADSs are tendered into the offer. The amount may also vary depending on the number of Cadbury ordinary shares, including those represented by Cadbury ADSs, outstanding at the time of the closing of the offer.

To the extent that the cash consideration under the offer is not funded from our own resources and/or proceeds from alternative funding sources, we expect to use borrowings under the bridge facility described below to refinance certain indebtedness of Cadbury and its subsidiaries and to finance the offer. Borrowings under the Loan Agreement (as defined below) are available for general corporate purposes of Kraft Foods and its subsidiaries.

On November 9, 2009, we entered into an agreement (the “Loan Agreement”) for a senior unsecured term loan facility with, among others, the lenders listed below, Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and HSBC Securities (USA) Inc., as joint bookrunners and Citibank, N.A. and Deutsche Bank AG Cayman Islands Branch, as co-administrative agents. The Loan Agreement originally provided for borrowings by us and certain of our subsidiaries that may be designated by us in an aggregate principal amount of up to £5.5 billion. On January 18, 2010, the Loan Agreement was amended to increase the loan facility of £5.5 billion to an aggregate of £7.1 billion. Under the Loan Agreement, we guarantee the obligations of any subsidiary borrower. Borrowings under the bridge facility will bear interest at a variable annual rate based on (a) LIBOR for

 

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borrowings in pounds sterling, (b) LIBOR or base rate, at our election, for borrowings in U.S. dollars and (c) EURIBOR for borrowings in euros, plus in each case an applicable margin based on the credit rating at that time for our long-term senior unsecured indebtedness. The Loan Agreement has a maturity date of 364 days following the initial borrowing thereunder.

The Loan Agreement requires the maintenance of a minimum total shareholders’ equity (excluding accumulated other comprehensive income or losses) of not less than $23 billion, which minimum level would be increased, in the event of completion of the offer, by 75% of any increase in such total shareholders’ equity as a direct result of certain issuances by Kraft Foods of equity securities to finance the acquisition of Cadbury or to refinance certain indebtedness. In addition, in the event that our long-term senior unsecured indebtedness is rated below investment grade (or not rated) by either Moody’s or S&P, the Loan Agreement requires us to maintain a leverage ratio (measured by the ratio of the total indebtedness (net of cash and cash equivalents) of Kraft Foods and its subsidiaries to the adjusted EBITDA of Kraft Foods and its subsidiaries) of not more than 4.25 to 1.00. The Loan Agreement also contains customary representations, covenants and events of default and requires the prepayment of advances and/or the permanent reduction of commitments under the bridge facility with the net cash proceeds received from certain disposals, debt issuances and equity capital markets transactions.

We may use a portion of Cadbury’s cash flow to repay indebtedness incurred in connection with the offer, including payments of interest, but we do not intend that security would be granted over Cadbury assets in connection with that indebtedness.

Subject to market conditions, we expect to refinance or reduce advances under the bridge facility from proceeds of alternative financing sources.

The initial lenders under the bridge facility were: Citibank, N.A.; Deutsche Bank AG Cayman Islands Branch; Deutsche Bank AG, London Branch; HSBC Bank USA, National Association; Barclays Bank PLC; Banco Bilbao Vizcaya Argentaria, S.A., New York Branch; BNP Paribas; Credit Suisse AG, Cayman Islands Branch; The Royal Bank of Scotland plc; and Société Générale.

If we consider it advantageous to do so, we may seek alternative funding in the form of a U.S. dollar, sterling or euro or another non-U.S. dollar denominated bond issue of an amount up to the amount of cash consideration payable under the offer, together with certain amounts payable in connection with, or arising as a result of, the offer, in lieu of borrowings under the amended bridge facility. Any such issue would comprise senior notes issued on prevailing market terms (including as to margin and fees) on a basis commensurate with our financial position and credit rating. Any such issue may be made shortly before or after the offer becomes or is declared wholly unconditional and would be expected to result in the amounts available to be drawn under the bridge facility being reduced. To the extent that such an issue is denominated in U.S. dollars, it would be offered under our effective registration statement on Form S-3 filed with the SEC. In addition to the covenants, events of default and other terms set forth in the prospectus included in that registration statement, we anticipate that any such issue would include a “change of control” covenant substantially identical to the covenant included in our 6.75% Notes due 2014. To the extent that such an issue is denominated in sterling, euro or another non-U.S. dollar currency, it would be offered on terms which are not materially different to the foregoing. Any bond issue would constitute our senior unsecured obligations and would rank equally in right of payment with all of our existing and future senior unsecured indebtedness.

Inducement Fee

Cadbury has agreed to pay an inducement fee of £117.7 million, which is approximately 1% of the aggregate value of the offer subject to any adjustment for value added tax (VAT), in the circumstances where a competing offer is announced and either is recommended by Cadbury or that offer or another third party offer becomes unconditional and our offer lapses or is withdrawn, unless, prior to such announcement, Cadbury withdraws its recommendation for reasons demonstrably unrelated to such competing third party offer.

 

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Purchases Outside the Offer

In accordance with normal U.K. practice and subject to Rule 14e-5(b) of the Exchange Act, Kraft Foods or its nominees, or its brokers (acting as agents), may from time to time make certain purchases of, or arrangements to purchase, Cadbury ordinary shares outside the United States, other than pursuant to the offer, before or during the period in which the offer remains open for acceptance. Any information about such purchases will be disclosed as required in the United Kingdom, will be reported to a Regulatory Information Service and will be available on the LSE web site, www.londonstockexchange.com. This information will be disclosed in the United States through amendments to our Tender Offer Statement on Schedule TO on file with the SEC to the extent that such information is made public in the United Kingdom pursuant to the U.K. Takeover Code. Free copies of the Tender Offer Statement are available on the SEC’s web site at www.sec.gov.

Also, in accordance with Rule 14e-5(b) of the Exchange Act, Citigroup Global Markets UK Equity Limited, Deutsche Bank AG, London Branch, UBS AG, London Branch, UBS Securities LLC, Goldman Sachs International, Spear Leeds & Kellogg Specialists LLC, Morgan Stanley Securities Limited, Morgan Stanley Capital Services Inc, Morgan Stanley & Co Inc, Morgan Stanley & Co International Plc and certain of their respective affiliates continue to act as exempt principal traders in Cadbury ordinary shares on the LSE. These purchases may occur either in the open market or as privately negotiated transactions. Any information about such purchases will be disclosed as required in the United Kingdom, will be reported to a Regulatory Information Service and will be available on the LSE web site, www.londonstockexchange.com. This information will also be made available to Cadbury securityholders if they call the information agent, toll-free in the United States at (800) 868-1391, or, if calling from outside the United States, at (212) 806-6859.

Regulatory Approvals

Antitrust in the United States

Under the HSR Act and the related rules and regulations that have been issued by the Federal Trade Commission (the “FTC”), certain acquisition transactions may not be consummated until certain information and documentary material (“Premerger Notification and Report Forms”) have been furnished to the FTC and the Antitrust Division of the Department of Justice (the “Antitrust Division”) and certain waiting period requirements have been satisfied. These requirements of the HSR Act apply to our proposed acquisition of Cadbury ordinary shares, including those represented by Cadbury ADSs.

Under the HSR Act, our purchase of Cadbury ordinary shares, including those represented by Cadbury ADSs, pursuant to the offer, was subject to a 30-day waiting period following our filing of a Premerger Notification and Report Form concerning the proposed acquisition of Cadbury with the FTC and the Antitrust Division. We filed a Premerger Notification and Report Form on November 9, 2009 with the FTC and the Antitrust Division in connection with the proposed purchase of Cadbury ordinary shares, including those represented by Cadbury ADSs, pursuant to the offer. On December 14, 2009, the required waiting period under the HSR Act expired. Accordingly, the U.S. antitrust condition has been satisfied.

At any time before or after our purchase of Cadbury ordinary shares, including those represented by Cadbury ADSs, the Antitrust Division or the FTC could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin our purchase of Cadbury ordinary shares or seeking the divestiture of Cadbury ordinary shares acquired by us or the divestiture of substantial assets of Cadbury or its subsidiaries.

In addition, the proposed acquisition of Cadbury may be reviewed by the attorneys general in the various states in which we and Cadbury operate. These authorities may claim that there is authority, under the applicable state and federal antitrust laws and regulations, to investigate and/or disapprove of the acquisition of Cadbury under the circumstances and based upon the review set forth in applicable state laws and regulations. We cannot assure you that one or more state attorneys general will not attempt to file an antitrust action to challenge the Cadbury acquisition. Private parties also may seek to take legal action under the antitrust laws in some circumstances.

 

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European Commission Merger Regulation

Both Kraft Foods and, based on publicly available information, Cadbury, sell products to customers based in the European Union. The EC Merger Regulation (Council Regulation (EC) 139/2004) requires notification of and approval by the European Commission of mergers or acquisitions involving parties with worldwide and European Union sales exceeding given thresholds. We filed a notification of the offer with the European Commission. On January 6, 2010, the European Commission announced that it had cleared the offer subject to the commitments that we have offered in relation to the divestiture of Cadbury’s chocolate businesses in Poland and Romania. Accordingly, the European Commission antitrust condition has been satisfied.

Other Foreign Competition Law Filings

Both Kraft Foods and, based on publicly available information, Cadbury, sell products in a number of other jurisdictions throughout the world, where antitrust filings or approvals are required or advisable in connection with the completion of the proposed acquisition of Cadbury.

Kraft Foods expects the offer to receive all necessary regulatory clearances in all other countries where approval is required. The clearance process is underway with the relevant antitrust authorities and Kraft Foods remains confident that any issues will be limited in scope and can be appropriately addressed.

However, we cannot assure you that all of these regulatory approvals described above will be obtained and, if obtained, we cannot assure you as to the timing of any approvals, our ability to obtain the approvals on satisfactory terms or the absence of any litigation challenging such approvals. We also cannot assure you that the Department of Justice, the FTC or any state attorney general, the European Commission or any other governmental entity or any private party will not attempt to challenge the completion of the offer on antitrust grounds, and, if such a challenge is made, we cannot assure you as to its result.

Certain Relationships with Cadbury and Interests of Kraft Foods in the Offer

Except as set forth in this prospectus/offer to exchange, neither Kraft Foods nor, to the best of our knowledge, any of our directors, executive officers or other affiliates has any contract, arrangement, understanding or relationship with any other person with respect to any securities of Cadbury, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as otherwise described in this prospectus/offer to exchange, there have been no contacts, negotiations or transactions since two years before the printing of this prospectus/offer to exchange, between Kraft Foods, any of Kraft Foods’ subsidiaries or, to the best of our knowledge, any of the persons listed on Schedule I to this prospectus/offer to exchange, on the one hand, and Cadbury or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, an exchange offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. We have not effected any transaction in securities of Cadbury in the past 60 days. Except as set forth in this prospectus/offer to exchange, none of our directors or executive officers nor any of their respective associates or majority owned subsidiaries, beneficially owns or has the right to acquire any securities of Cadbury or has effected any transaction in securities of Cadbury during the past 60 days.

The name, citizenship, business address, business telephone number, principal occupation or employment, and five-year employment history for each of our directors and executive officers and certain other information is set forth in Schedule I of this prospectus/offer to exchange. Except as described in this prospectus/offer to exchange and in Schedule I hereto, neither Kraft Foods, nor, to our best knowledge, any of the persons listed on Schedule I to this prospectus/offer to exchange, has during the last five years (a) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (b) been a party to any judicial or administrative proceeding (except for matters that were dismissed without sanction or settlement) that resulted in

 

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a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws or finding any violation of such laws. Except as set forth in this prospectus/offer to exchange, none of the persons listed on Schedule I, nor any of their respective associates or majority owned subsidiaries, beneficially owns or has the right to acquire any securities of Cadbury or has effected any transaction in securities of Cadbury during the past 60 days.

We do not believe that the offer and any compulsory acquisition will result in a change of control under any of our stock option plans or any change in control agreement between us and any of our employees. As a result, no options or other equity grants held by such persons will vest as a result of the offer and any compulsory acquisition.

Fees and Expenses

We have retained Georgeson Inc. as information agent in connection with the offer. The information agent may contact Cadbury securityholders by mail, telephone, telex, telegraph and personal interview and may request brokers, dealers, commercial banks, trust companies and other nominees to forward material relating to the offer to beneficial owners of Cadbury ordinary shares and Cadbury ADSs. We will pay the information agent reasonable and customary compensation for these services in addition to reimbursing the information agent for its reasonable out-of-pocket expenses. We agree to indemnify the information agent against certain liabilities and expenses in connection with the offer.

In addition, we have retained Computershare Investor Services PLC as the Ordinary Share Exchange Agent and Computershare Trust Company, N.A. as the ADS Exchange Agent in connection with the offer. We will pay the Ordinary Share Exchange Agent and the ADS Exchange Agent customary compensation for their services in connection with the offer, will reimburse them for their reasonable out-of-pocket expenses and will indemnify them against certain liabilities and expenses.

Except as set forth above, we will not pay any commissions or fees to any broker, dealer or other person for soliciting tenders of shares pursuant to the offer. We will reimburse brokers, dealers, commercial banks and trust companies and other nominees, upon request, for customary clerical and mailing expenses incurred by them in forwarding offering materials to their customers.

Accounting Treatment

We will account for the acquisition of Cadbury pursuant to the offer in accordance with U.S. GAAP, as treated within the acquisition method of accounting for business combinations. Under this method of accounting, we will record the exchange of Cadbury ordinary shares, including those represented by Cadbury ADSs, for Kraft Foods common stock based on the fair value of the consideration given, which is the market value of Kraft Foods common stock issued in connection with the offer (based on the closing share price on the date the minimum acceptance condition is satisfied) and the cash consideration paid in the offer, as the purchase price of Cadbury. We will allocate the purchase price to the net tangible and identifiable intangible assets acquired and liabilities assumed based on their respective fair values at the date the minimum acceptance condition is satisfied. Any excess of the purchase price over those fair values will be recorded as goodwill.

Definite lived intangible assets will be amortized over their estimated useful lives. Intangible assets with indefinite useful lives and goodwill will not be amortized but will be tested for impairment at least annually. All intangible assets and goodwill are also tested for impairment when certain indicators are present. If in the future, we determined that intangible assets or goodwill are impaired, an impairment charge would be recorded at that time.

The purchase price allocation reflected in the pro forma information included in this prospectus/offer to exchange is based on preliminary assumptions. The amount of the estimated purchase price allocated to goodwill and intangibles is approximately $21.1 billion. The final purchase price allocation, which will be based in part on detailed valuation studies which have not yet been completed, may result in an increase or decrease in finite-lived

 

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intangible assets which could result in a material increase or decrease in the estimated amortization of intangible assets included in the pro forma information included in this prospectus/offer to exchange. We expect to complete the final purchase price allocation no later than 12 months following the date the minimum acceptance condition is satisfied or we otherwise acquire Cadbury.

Listing of Kraft Foods Common Stock to be Issued in Connection with the Offer and any Compulsory Acquisition

Kraft Foods will submit the necessary applications to cause the shares of Kraft Foods common stock to be issued in the offer and any compulsory acquisition to be approved for listing on the NYSE. Approval of this listing is a condition to the offer.

General

Appendix A to this prospectus/offer to exchange contains the conditions and other terms of the offer and Appendix B to this prospectus/offer to exchange contains additional information that we are required to disclose under the U.K. Takeover Code. The terms, provisions, instructions and authorities contained in or deemed to be incorporated in any Form of Acceptance or ADS Letter of Transmittal, including any electronic acceptance, as well as those set forth in this prospectus/offer to exchange and those set forth in Appendix A and Appendix B constitute a part of the offer. You should carefully review these terms and provisions. References in this prospectus/offer to exchange to “outstanding” Cadbury ordinary shares refer to all issued and to be issued share capital of Cadbury. References in this prospectus/offer to exchange to the “offer” refer to any subsequent revision, variation, extension or renewal of the offer, including any election or alternative available in connection with it. References in this prospectus/offer to exchange to the “ADS Letter of Transmittal” or the “Form of Acceptance”, as applicable, include the ADS Letter of Transmittal and Form of Acceptance accompanying the original prospectus/offer to exchange and the ADS Letter of Transmittal and Form of Acceptance accompanying this prospectus/offer to exchange.

 

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DESCRIPTION OF KRAFT FOODS CAPITAL STOCK

Kraft Foods authorized capital stock consists of 3,000,000,000 shares of Class A common stock, without par value, 2,000,000,000 shares of Class B common stock, without par value, and 500,000,000 shares of preferred stock, without par value. As of January 15, 2010, there were 1,478,590,016 shares of Kraft Foods Class A common stock outstanding, and held of record by 80,998 shareholders, and no shares of Kraft Foods Class B common stock or preferred stock outstanding and we do not intend to issue any such shares. As of January 15, 2010, there were 59,176,079 shares of Kraft Foods Class A common stock reserved for outstanding stock options and other stock awards.

The Kraft Foods articles of incorporation, as amended, specify different rights for holders of Kraft Foods Class A common stock and Class B common stock with regard to dividends, liquidation, and corporate reorganization. However, all outstanding shares of Kraft Foods Class B common stock were converted to Kraft Class A common stock immediately prior to the Kraft Foods spin-off from Altria Group, Inc. Therefore, all information presented in this prospectus/offer to exchange concerning the rights, preferences, qualifications, limitations or restrictions of Kraft Foods common stock relates to Kraft Foods Class A common stock only.

The following description of the terms of the Kraft Foods common stock and preferred stock is not complete and is qualified in its entirety by reference to Kraft Foods’ articles of incorporation, as amended, and its amended and restated by-laws. To find out where copies of these documents can be obtained, please see the section of this prospectus/offer to exchange entitled “Where You Can Find More Information.”

Common Stock

The outstanding shares of Kraft Foods common stock are validly issued, fully paid and nonassessable. The holders of the Kraft Foods common stock have no preemptive rights and no rights to convert their Kraft Foods common stock into any other securities, and the Kraft Foods common stock is not subject to any redemption or sinking fund provisions.

Subject to the preferences applicable to any shares of Kraft Foods preferred stock outstanding at any time, holders of Kraft Foods common stock are entitled to receive dividends when and as declared by the Kraft Foods board of directors from funds legally available therefore and are entitled, in the event of a liquidation, to share ratably in all assets remaining paid after payment of liquidation.

The principal stock exchange on which the Kraft Foods common stock is listed is the NYSE under the symbol “KFT.” The transfer agent and registrar for the Kraft Foods common stock is Wells Fargo Bank, N.A.

Preferred Stock

Kraft Foods’ board of directors has the authority, without action by the shareholders, to issue up to 500,000,000 shares of Kraft Foods preferred stock in one or more series or classes and to fix the following terms of the preferred stock:

 

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the designation of each series;

 

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the number of shares of each series, as well as the powers, preferences and rights, as well as the qualifications, limitations or restrictions thereof;

 

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dividend rights and the dividend rate, if any;

 

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the rights and term of conversion or exchange, if any;

 

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the voting rights, if any;

 

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the rights and terms of redemption, if any, and the redemption price; and

 

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the rights of the series in the event of any involuntary or voluntary liquidation, dissolution or winding-up of the affairs of Kraft Foods.

Articles of Incorporation and By-Law Provisions

Various provisions contained in the Kraft Foods articles of incorporation, as amended, and amended and restated by-laws could delay or discourage some transactions involving an actual or potential change in control of Kraft Foods or its management and may limit the ability of Kraft Foods shareholders to remove current management or approve transactions that Kraft Foods shareholders may deem to be in their best interests. These provisions:

 

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authorize Kraft Foods’ board of directors to establish one or more series or classes of undesignated preferred stock, the terms of which can be determined by the board of directors at the time of issuance;

 

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do not authorize cumulative voting;

 

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provide that only the board of directors and the chairman of the board of directors may call a special meeting of the shareholders, except that the board of directors must call a special meeting upon the request from at least 20% of the combined voting power of the outstanding shares of all classes of Kraft Foods’ capital stock;

 

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provide an advanced written notice procedure with respect to shareholder proposals and shareholder nomination of candidates for election as directors; and

 

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allow Kraft Foods’ directors, and not its shareholders, to fill any vacancies on its board of directors, including vacancies resulting from amending the by-laws to increase the number of directors by 30% or less.

Information on CREST Depository Interests

General

If you hold your Cadbury ordinary shares in uncertificated form (that is, in CREST) you will receive CREST Depository Interests, or CDIs, representing entitlements to your shares of Kraft Foods common stock, which will be credited to your CREST account. CDIs are depository interests in non-U.K. securities, in this case, shares of Kraft Foods common stock. CDIs are transferred exclusively through CREST.

The CDI arrangements do not affect the economic rights attached to the underlying shares of Kraft Foods common stock. However, while holders of CDIs will beneficially own the underlying shares of Kraft Foods common stock, they will not be the record holders of those shares. Shares of Kraft Foods common stock to which Cadbury shareholders who hold their Cadbury ordinary shares through CREST will be entitled in the offer will be delivered, held and settled in CREST by means of the CREST International Settlement Links Service, and in particular CREST’s established link with DTC. This link operates via the services of CREST International Nominees, which is a DTC participant.

The terms on which CDIs are issued and held in CREST are set out in the CREST manual issued by Euroclear (and, in particular, the deed poll set out in the CREST International Manual) and the CREST Terms and Conditions issued by Euroclear. A custody fee, as determined by CREST from time to time, is charged at the user level for the use of CDIs.

 

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Rights of Holders of CDIs

The record holder of the shares of Kraft Foods common stock represented by CDIs will be Cede & Co, a nominee entity of DTC. The custodian of these shares of Kraft Foods common stock will be CREST International Nominees, who will hold these shares of Kraft Foods common stock through the DTC system as nominee for CREST Depository Limited. CREST Depository Limited will hold these shares of Kraft Foods common stock in trust (as bare trustee under English law) for the Cadbury shareholders who receive CDIs. Accordingly, the holders of CDIs will only be able to enforce and exercise the rights relating to the underlying shares of Kraft Foods common stock in accordance with the arrangements described below.

In order to allow the holders of CDIs to exercise rights relating to the underlying shares of Kraft Foods common stock, we will enter into arrangements pursuant to which holders of CDIs will be able to:

 

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receive notices of Kraft Foods shareholder meetings;

 

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give directions as to voting at Kraft Foods shareholder meetings;

 

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have made available to them and be sent, at their request, copies of our annual report and any other documents we send to our shareholders; and

 

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otherwise be treated in the same manner as if they were the record holders of the shares of Kraft Foods common stock underlying their CDIs,

in each case, in accordance with applicable law and, to the extent possible, in accordance with the CREST arrangements.

Voting

Holders of CDIs will be entitled to attend our shareholder meetings in person as a result of their beneficial interest in Kraft Foods common stock. In addition, under an agreement for the provision of the CDI register, Euroclear will make available to us (and/or our voting agent) a copy of the register of the names and addresses of CDI holders to enable us (and/or our voting agent) to:

 

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send out notices of our shareholder meetings and proxy forms to CDI holders; and

 

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produce a definitive list of CDI holders as at the record date for the meeting.

In addition, Cede & Co and Euroclear have omnibus proxy arrangements pursuant to which Crest International Nominees Limited (the custodian of the shares of Kraft Foods common stock underlying the CDIs) will be able to grant each CDI holder the right to vote in respect of such holder’s underlying shares of Kraft Foods common stock. As a result, the custodian and the depositary will simply pass on any voting rights they have, by virtue of holding the underlying shares of Kraft Foods common stock, to the CDI holders.

Dividends

Dividends paid on Kraft Foods common stock will be paid to a holder of CDIs in the currency in which that holder has elected to receive payments through CREST.

Transfer and Cancellation of CDIs

Holders of CDIs will be able to cancel their CDIs by settling a cross border delivery transaction in respect of the underlying shares of Kraft Foods common stock through CREST to a DTC participant, in accordance with the rules and practices of CREST and DTC. Transaction fees will be payable by a holder of CDIs who executes a transaction through CREST.

 

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COMPARISON OF SHAREHOLDERS’ RIGHTS

Cadbury securityholders who validly tender their Cadbury ordinary shares or Cadbury ADSs in the offer and do not withdraw such securities (subject to the mix and match facility) will receive shares of Kraft Foods common stock following consummation of the offer. Cadbury is organized under the laws of England and Wales and Kraft Foods is organized under the laws of the Commonwealth of Virginia. Accordingly, differences in the rights of holders of Cadbury capital stock and Kraft Foods capital stock arise both from differences between the articles of incorporation, as amended, and the amended and restated by-laws of Kraft Foods and the memorandum and articles of association of Cadbury and also from differences between Virginia law and English law. As holders of Kraft Foods common stock, your rights with respect thereto will be governed by Virginia law, including the Virginia Stock Corporation Act, as well as Kraft Foods’ constituent documents. This section summarizes the material differences between the rights of holders of Cadbury ordinary shares, including those represented by Cadbury ADSs, and the rights of Kraft Foods shareholders.

The following summary is not a complete statement of the rights of shareholders of either of the two companies or a complete description of the specific provisions referred to below. This summary is qualified in its entirety by reference to the Virginia Stock Corporation Act, the U.K. Companies Act, and Cadbury’s and Kraft Foods’ constituent documents, which you are urged to read carefully. There are a number of differences between Virginia law and English law, many (but not all) of which are summarized below. Copies of the companies’ constituent documents have been filed with the SEC. To find out where you can get copies of these documents, please see the section of this prospectus/offer to exchange entitled “Where You Can Find More Information.”

 

		Kraft Foods		Cadbury
Authorized Capital		The authorized capital stock of Kraft Foods is set forth under the section of this prospectus/offer to exchange entitled “Description of Kraft Foods Capital Stock” above.   The board of directors of Kraft Foods can decide how to deal with any authorized shares that are not outstanding.		The authorized share capital of Cadbury is £250,000,000, divided into 2,500,000,000 ordinary shares of 10 pence each.   The directors can decide how to deal with any shares that have not been issued, taking into account legislative provisions, the company’s articles, shareholder resolutions and rights attached to existing shares.   English law restricts directors from exercising the power to allot shares or grant rights to subscribe for or to convert any securities to shares in the company unless they are authorized by the articles of association of the company or by an ordinary resolution of shareholders. At the last annual general meeting of Cadbury on May 14, 2009, Cadbury shareholders voted to allow Cadbury such authority, subject to specified parameters of time and volume. Such authority is set to expire at the earlier of the next annual general meeting of Cadbury and May 14, 2010.
Common Stock		Each holder of Kraft Foods common stock is entitled to cast one vote per share.		Cadbury’s articles of association provide that resolutions voted on at any general meeting will be decided by a show of hands

 

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		Kraft Foods		Cadbury
				unless a poll is demanded by: (a) the chairman of the meeting; (b) at least five persons are present and entitled to vote; and (c) Cadbury shareholders (or their proxies) are present, entitled to vote and representing at least 10% of the votes of all shareholders with the right to vote at the meeting or holding shares on which the total paid up amount on their shares is at least 10% of the total sum paid up on all shares giving the right to vote at the meeting.   Subject to any special rights or restrictions, on a poll, each Cadbury shareholder is entitled to cast one vote per share, whether in person or by proxy.
Preferred Stock		The Kraft Foods articles of incorporation, as amended, authorize the Kraft Foods board of directors, without further shareholder action or approval, to issue shares of preferred stock in one or more classes or series, and to fix the rights, preferences and privileges of the shares of each unissued class or series and any of its qualifications, limitations or restrictions. No shares of Kraft Foods preferred stock have been issued.		Cadbury’s articles of association authorize Cadbury by ordinary resolution of the shareholders or by the directors (not acting in conflict with any shareholder resolution) to issue shares with any rights or restrictions attached to them so long as this is not restricted by any rights attached to existing shares.
Dividend Policy		Dividends are declared and approved at the discretion of the Kraft Foods board of directors. Virginia corporations have considerable flexibility to make distributions to shareholders. In summary, under Virginia law, the board of directors of Kraft Foods may authorize and pay dividends so long as Kraft Foods meets two tests: (a) Kraft Foods would be able to pay its debts as they become due in the normal course of business; or (b) Kraft Foods’ total assets would not be less than the sum of its total liabilities plus the amount needed, if the corporation were to be dissolved at the time of the dividend, to satisfy any preferential rights superior to those receiving the dividend.   In the third quarter of 2008, the Kraft Foods board of directors approved a 7.4% increase		Pursuant to the Cadbury articles of association, dividends not exceeding an amount recommended by the directors are declared by ordinary resolution of Cadbury shareholders. In addition, if the directors consider that the financial position of the company justifies such payments, they can pay interim dividends on shares of any amounts and on any dates and for any period which they decide.   English law requires the payment of distributions to be made out of “profits available for the purpose” and additionally restricts a public company from making a distribution if the distribution would reduce the amount of the net assets of the company below the aggregate amount of its called up share capital and certain undistributable reserves.

 

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		Kraft Foods		Cadbury
		in the current quarterly dividend rate to $0.29 per share payable on Kraft Foods common stock. As a result, the present annualized dividend rate is $1.16 per share of Kraft Foods common stock. The annual cash dividends per share for 2008 through 2004 were, respectively, $1.12 per share, $1.04, $0.96, $0.87 and $0.77.
Preemptive rights		None.		English law provides for statutory pre-emption rights that will apply on an allotment of equity securities. Such rights may be disapplied by special resolution of the shareholders. At the annual general meeting on May 14, 2009, Cadbury shareholders voted to disapply the statutory rights in respect of equity securities up to a specified amount. Such authority is set to expire at the next annual general meeting of Cadbury.
Number of Directors		The Kraft Foods articles of incorporation, as amended, provide that the number of directors on the board shall be fixed in the by-laws, or if not so fixed, the number shall be two. The Kraft Foods amended and restated by-laws provide for 12 directors.		Cadbury’s articles of association provide that Cadbury must have a minimum of two directors and a maximum of 20 directors (excluding alternate directors), subject to change by ordinary resolution of the shareholders.
Terms of Directors		Each Kraft Foods director serves for the term for which he or she shall have been elected and until a successor shall have been duly elected. Each Kraft Foods director has been elected to a one-year term.		Cadbury’s articles of association provide for retirement by rotation, such that a Cadbury director must retire at every annual general meeting of Cadbury if he or she has: (a) been appointed by the directors since the previous annual general meeting; (b) held office at the time of the two previous annual general meetings and not retired at either of them; or (c) held office, other than in an executive position, for a continuous period of nine years or more at the date of the annual general meeting. A Cadbury director so resigning may offer himself or herself for immediate reappointment by the shareholders.
Removal of Directors		Kraft Foods’ articles of incorporation, as amended, are silent with respect to removal of directors. Therefore, removal of directors is governed by Virginia law, which provides that shareholders may remove one or more directors with or without cause if the number of votes cast to remove the director		Cadbury’s articles of association provide that a Cadbury director may be removed by special resolutions of the shareholders. This is in addition to provisions of English law, under which Cadbury may remove a director by ordinary resolutions of the shareholders at a meeting for which special notice has

 

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		Kraft Foods		Cadbury
		constitutes a majority of the votes entitled to be cast at an election of directors, subject to the following: (a) if a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove the director; and (b) a director may be removed by the shareholders only at a meeting called for the purpose of removing the director. The meeting notice shall state that the purpose, or one of the purposes of the meeting, is removal of the director. None of the directors of Kraft Foods have been elected by a voting group of shareholders.		been given (a period of notice to Cadbury of 28 days before the meeting).
Director Vacancies		Kraft Foods’ amended and restated by-laws provide that any vacancy may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum.		Cadbury’s articles of association provide that a director retiring by rotation at an annual general meeting can be reappointed or another eligible person can be appointed to fill a vacancy by ordinary resolutions of the shareholders.   The directors, or Cadbury by ordinary resolution of the shareholders, can appoint any willing person to be a director, either as an extra director or to fill a vacancy.
Nomination of Directors		Kraft Foods’ amended and restated by-laws provide that a shareholder wishing to nominate a director or properly bring other business before an annual meeting must deliver written notice of nomination or business, in specified form, to the secretary of Kraft Foods. This notice must be received: (a) no less than 120 days, and no more than 150 days, prior to the first anniversary of the prior year’s annual meeting, or (b) if the date of the applicable annual meeting has been changed by more than 30 days from the date of the prior year’s annual meeting, not less than 60 days before the date of the annual meeting, or (c) with respect to any special meeting of shareholders called for the election of directors, no later than the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders.		Cadbury’s articles of association provide that a Cadbury shareholder wishing to nominate a director must: (a) be a Cadbury shareholder entitled to vote at a general meeting; (b) not be the nominee; and (c) deliver to the office of Cadbury not less than seven nor more than 42 days before the date of the meeting a letter of his or her intention to nominate and written consent from the nominee to his or her appointment.
Election of Directors		Under the Kraft Foods amended and restated by-laws, each Kraft Foods director is elected		See above section entitled “Director Vacancies.”

 

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		Kraft Foods		Cadbury
		by a majority of the votes cast with respect to that director-nominee’s election at a meeting for electing directors at which a quorum is present. However, a plurality of the votes cast in such election shall be needed if there are more nominees than number of directors to be elected, one or more of whom has been properly proposed by shareholders.
Shareholder Action by Written Consent		Under Virginia law, any action required or permitted to be taken by the shareholders can be effected by unanimous written consent.		Under English law, resolutions of a public limited company must be passed at a meeting of its members.
Special Meetings		Kraft Foods’ amended and restated by-laws provide that, unless otherwise provided by law, special meetings of the shareholders may be called by the chairman of the board of directors or by order of the board of directors, whenever deemed necessary, except that the board of directors must, subject to certain exceptions in the by-laws, call a special meeting of the shareholders upon the request from at least 20% of the combined voting power of the outstanding shares of all classes of Kraft Foods’ capital stock entitled to vote on the matters to be voted on at the meeting.		Under English law, shareholders representing 10% or more of the paid-up capital of the company can require the directors to call a general meeting. In the event that directors do not call a meeting within 21 days (such meeting to be held within 28 days after the notice convening the meeting), the shareholders who requested the meeting, or any shareholders representing more than 50% of the company’s voting rights, may call a meeting at the company’s expense.
Indemnification		The Kraft Foods articles of incorporation include indemnification provisions under which Kraft Foods is required to indemnify, to the fullest extent permitted by Virginia law, any person who was or is a party to any proceeding by reason of the fact that such person is or was a director, officer or employee of Kraft Foods or a person who is or was serving at the request of Kraft Foods as a director, trustee, partner, officer or employee of another corporation, affiliated corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Kraft Foods is empowered to enter into a contract to indemnify any eligible person against liability in respect of any proceeding arising from any act or omission, whether occurring before or after the execution of such contract.		Cadbury’s articles of association provide that, to the extent permitted by English law, the company can indemnify any Cadbury director or any director of any associated company against any liability and can purchase and maintain insurance for him or her against any liability.   English law will restrict the applicability of this provision, such that Cadbury will not be permitted to indemnify for liability incurred by the director, the company or an associated company: (a) to pay a fine in criminal proceedings or to a regulatory authority for non-compliance with any regulation; (b) incurred in defending criminal proceedings in which he or she is convicted; (c) incurred in defending civil proceedings brought by the company or an associated company in which judgment is given against him or her; or (d) in

 

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		Kraft Foods		Cadbury
		Virginia law prohibits indemnification for willful misconduct or a knowing violation of criminal law.   Kraft Foods will indemnify any eligible person who prevails in the defense of any proceeding. Any other indemnification shall be made by Kraft Foods only as authorized in the specific case upon a determination that indemnification is proper in the circumstances because the eligible person has met any standard of conduct that is a prerequisite to his or her entitlement to indemnification.   Kraft Foods may pay for or reimburse the reasonable expenses incurred by any person entitled to indemnification who is a party to a proceeding in advance of final disposition of the proceeding or the making of any determination if any such person furnishes Kraft Foods (a) a written statement, executed personally, of his or her good faith belief that he or she has met any standard of conduct that is a prerequisite to his or her entitlement to indemnification and (b) a written undertaking, executed personally or on his or her behalf, to repay the advance if it is ultimately determined that he or she did not meet such standard of conduct.		connection with an application to the court for certain specified reliefs in which the court refuses to grant such relief (i.e., that he or she acted honestly and reasonably despite a claim for his or her negligence).
Limitation of Liability		Under the Kraft Foods articles of incorporation, to the fullest extent permitted under Virginia law, no director or officer of Kraft Foods or other eligible person made a party to any proceeding shall be liable to Kraft Foods or its shareholders for monetary damages arising out of any transaction, occurrence or course of conduct. Under Virginia law, the liability of an officer or director may not be limited if the officer or director engaged in willful misconduct or a knowing violation of the criminal law or of any federal or state securities law, including, without limitation, any claim of unlawful insider trading or manipulation of the market for any security.		Under English law, with the exception of certain permitted indemnities (see above section entitled “Indemnification”) and maintenance of insurance, any provision purporting to exempt a director of a company from any liability that would otherwise attach to him or her in connection with any negligence, default, breach of duty or breach of trust in relation to the company is void.
Amendment to the Articles of Incorporation		Virginia law provides that Kraft Foods may amend its articles of incorporation upon a resolution of the board of directors		Under English law, a company may amend its articles of association by special resolution of the shareholders, subject to any

 

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		Kraft Foods		Cadbury
		proposing the amendment and its submission to the shareholders for their approval. The Kraft Foods articles of incorporation require approval by a majority of all votes entitled to be cast by each voting group entitled to vote on the amendment.   Virginia law provides that when an exchange, reclassification or change of shares is effected by amendment of the articles of incorporation, and a material difference in right results, or the par value of the shares is changed or the corporate name is changed, the action of the shareholders authorizing the amendment may prescribe a time after which the holders of the old shares shall no longer be entitled to receive distributions or to vote or to exercise any other rights as shareholders until certificates representing the old shares are surrendered in exchange for certificates representing the new shares; but upon such surrender all distributions not paid because of this provision shall be paid without interest.		conditional provisions in the articles as set out on formation or by unanimous agreement of the shareholders.   Cadbury’s articles of association provide that the rights attached to any class of shares can be changed if approved in writing by shareholders holding at least 75% of the issued shares of that class by amount or by special resolution by the shareholders at a separate meeting of the holders of that class.
Amendment to the By-laws		Kraft Foods’ amended and restated by-laws provide that the by-laws may be altered, amended, or repealed by the board of directors, but by-laws made by the board of directors may be repealed or changed by the shareholders, or new by-laws adopted by the shareholders, and the shareholders may prescribe that any by-laws made by them shall not be altered, amended or repealed by the directors.		See above section entitled “Amendment to the Articles of Incorporation.”
Appraisal Rights		Under Virginia law, a shareholder of a Virginia corporation generally has the right to obtain payment of fair value of that shareholder’s shares in the event of a merger, share exchange or sale of assets requiring shareholder approval or any interested transaction, subject to certain requirements. Appraisal rights are also available to shareholders if the articles of incorporation are amended to reduce the number of shares of a class or series of shares to a fraction of a share if the corporation has the obligation or right to repurchase the fractional share created. Additionally, appraisal rights are available		Not applicable.

 

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		Kraft Foods		Cadbury
		to shareholders with respect to any other amendment to the articles of incorporation, merger, share exchange or sale of assets if provided in the articles of incorporation, the by-laws or by resolution of the board of directors.   Virginia law does not confer appraisal rights on a shareholder of any shares: (a) that constitute a covered security under Section 18(b)(1)(A) or (B) of the federal Securities Act of 1933, as amended, (b) that are traded in an organized market with at least 2,000 shareholders and a market value of at least $20 million, exclusive of the value of such shares held by the corporation’s subsidiaries, senior executives, directors and beneficial owners owning at least 10% of such shares, or (c) that are issued by an open-end management investment company registered with the SEC under the Investment Company Act of 1940 and that may be redeemed at the holder’s option at net asset value. However, appraisal rights are available if a shareholder is required to accept something other than cash or shares of any corporation or other proprietary interest of any other entity that satisfies (a), (b) or (c) above.   An amendment to the articles of incorporation that limits or eliminates appraisal rights for shares of preferred stock outstanding immediately prior to the effective date of such amendment will not apply to any corporate action effective within one year from that date if such action would have otherwise afforded appraisal rights.
Control Share Acquisition		Kraft Foods has opted out of the Virginia anti-takeover law regulating “control share acquisitions.”		Not applicable.
Affiliate Transactions		Under Virginia law, material acquisition transactions between Kraft Foods and any holder of more than 10% of any class of its outstanding voting shares are required to be approved by a majority of the disinterested directors and by the holders of at least two-thirds of the remaining voting shares.		Under the listing rules of the U.K. Listing Authority, subject to certain exceptions, a listed company must disclose and obtain shareholder approval for transactions between the company or its subsidiary and a related party.

 

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		Kraft Foods		Cadbury
		Affiliated transactions subject to this approval requirement include mergers, share exchanges, material dispositions of corporate assets not in the ordinary course of business, the sale of shares of the corporation or any of its subsidiaries to a 10% holder having an aggregate fair market value of greater than 5% of the aggregate fair market value of the corporation’s outstanding shares, any dissolution of Kraft Foods proposed by or on behalf of a 10% holder or any reclassification, including reverse stock splits, recapitalization or merger of Kraft Foods with its subsidiaries, that increases the percentage of voting shares beneficially owned by a 10% holder by more than 5%.		A related party includes: (a) a person who is, or was within the 12 months before the transaction, a shareholder capable of exercising 10% or more of the votes at general meetings, or a director or shadow director of the company or its subsidiary; (b) a person exercising significant influence over the company; or (c) an associate of a related party.
Suspension of Rights for Non-Disclosure		No similar provisions.		English law permits a company to send out notices to those it knows or has reasonable cause to believe have an interest in its shares asking for details of the extent of interests in its shares. Cadbury shareholders holding at least 10% of the paid up voting share capital of Cadbury may require the company to send out a notice requesting information.   Cadbury’s articles of association provide that if a Cadbury shareholder does not comply with the notice within 14 days of receipt, Cadbury may serve a restriction notice on such shareholder stating that the shareholder no longer has any right to attend or vote at a shareholder meeting or to exercise any other right in relation to shareholders’ meetings. If the shareholder holds 0.25% or more (in amount or number) of the existing shares of any class, the Cadbury directors can also withhold dividend payments on those Cadbury shares and can refuse to register a transfer of those shares.   Additionally, English law permits Cadbury to apply to the courts to restrict the rights of those who do not comply with the requirements to disclose their interests in the time limit specified in the notice. The effect of such an order will be that: (a) any transfer of shares is void; (b) no voting rights are exercisable on those shares; and (c) no payment may be made on the shares (in respect of capital or otherwise).

 

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		Kraft Foods		Cadbury
Lien and Call		No similar provisions.		Under the Cadbury articles of association, the company has a lien on all partly paid shares, which has priority over other claims to the shares. The Cadbury directors may make calls on Cadbury shareholders to pay any money outstanding on their shares (including outstanding amounts of nominal value). In the event that a call is not complied with within at least 14 clear days of the call (or any longer period in the notice of call), the Cadbury shareholder may forfeit the shares and the Cadbury directors may sell them as they see fit.

 

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UNAUDITED U.S. GAAP PRO FORMA FINANCIAL INFORMATION

The following unaudited pro forma financial information for the year ended December 31, 2008, and for the six month period ended June 30, 2009, the date of the latest publicly available financial information of Cadbury, gives effect to (a) the disposal of the Kraft Foods pizza business as announced on January 5, 2010 and (b) the acquisition of Cadbury by Kraft Foods, as if both transactions had occurred on January 1, 2008. The following unaudited pro forma balance sheet information at June 30, 2009, gives effect to the disposal of the pizza business and the acquisition of Cadbury by Kraft Foods as if it had occurred on June 30, 2009.

We have not had due diligence access to Cadbury or its business or management for the purposes of preparing this prospectus/offer to exchange. Therefore, non-public information concerning Cadbury’s business and financial condition was not available to us for the purpose of presenting pro forma combined financial data for the nine-month period ended September 30, 2009. We have requested current financial information from Cadbury, including financial information for the nine-month period ended September 30, 2009. If we receive such information sufficiently in advance of the effectiveness of our registration statement of which this prospectus/offer to exchange forms a part, we would be required to compile pro forma combined financial data for the nine-month period ended September 30, 2009 and include it in this prospectus/offer to exchange prior to the effectiveness of our registration statement.

The unaudited pro forma financial information included in this prospectus/offer to exchange is based on the historical financial statements of Kraft Foods and Cadbury and on publicly available information and certain assumptions which Kraft Foods believes to be reasonable, which are described in the notes to the statements below. Kraft Foods has not performed any due diligence or detailed valuation analysis necessary to determine the fair market values of the Cadbury assets to be acquired and liabilities to be assumed, and accordingly, except as described in note 4(a) below, the pro forma financial statements do not include an allocation of the purchase price to reflect the fair value of those assets and liabilities.

The unaudited pro forma financial information:

 

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has been prepared for illustrative purposes only, and because of its nature, addresses a hypothetical situation and, therefore, does not represent the combined actual financial position or results of Kraft Foods and Cadbury;

 

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does not purport to represent what the consolidated results of operations actually would have been if the acquisition of Cadbury had occurred on January 1, 2008 or what those results will be for any future periods or what the consolidated balance sheet would have been if the acquisition of Cadbury had occurred on June 30, 2009. The pro forma adjustments are based on information current as at December 1, 2009 (being the latest practicable date prior to our making the offer); and

 

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has not been adjusted to reflect any matters not directly attributable to implementing the acquisition of Cadbury. No adjustment, therefore, has been made for actions which may be taken once the offer is complete, such as any of our integration plans related to Cadbury.

The unaudited pro forma financial information has been compiled from the following sources:

 

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U.S. GAAP financial information on Kraft Foods has been extracted without material adjustment from Kraft Foods’ audited consolidated statements of earnings for the year ended December 31, 2008 contained in Kraft Foods’ Current Report on Form 8-K filed with the SEC on November 3, 2009 and incorporated by reference into this prospectus/offer to exchange, and unaudited consolidated statements of earnings for the six months ended June 30, 2009 and the unaudited consolidated balance sheet as at June 30, 2009 contained in Kraft Foods’ Quarterly Report on Form 10-Q, for the quarter ended June 30, 2009 and incorporated by reference into this prospectus/offer to exchange. Financial

 

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information from the reconciliations summarizing the material differences between U.S. GAAP and IFRS has not been adjusted to reflect any matters not directly attributable to implementing the acquisition of Cadbury. No adjustment, therefore, has been made for actions which may be taken once the offer is complete, such as any integration plans of Cadbury.

 

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IFRS financial information on Cadbury has been extracted without material adjustment, except for currency translation as noted below, from the Cadbury audited consolidated income statement for the year ended December 31, 2008, contained in Cadbury’s Annual Report on Form 20-F for the year ended December 31, 2008 and incorporated by reference into this prospectus/offer to exchange, and from the Cadbury unaudited consolidated statement of income for the six months ended June 30, 2009, and unaudited consolidated balance sheet as at June 30, 2009, contained in Cadbury’s Report on Form 6-K furnished to the SEC on July 29, 2009 and incorporated by reference into this prospectus/offer to exchange.

 

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Unaudited adjustments have been made to deduct the operations and net assets of Kraft Foods’ pizza business and to reflect the impact of proceeds received from the sale. The basis for these adjustments is explained in the notes accompanying the tables.

 

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Unaudited adjustments have been made to align the Cadbury IFRS financial information with Kraft Foods’ U.S. GAAP accounting policies. Because Kraft Foods did not have access to non-public or detailed financial statements of Cadbury, these adjustments have been estimated based on publicly available information. The basis for these adjustments is explained in the notes to the information accompanying the tables.

 

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Kraft Foods translated its historical financial information based on the requirements of SFAS 52, using historical exchange rates, as described in the section of this prospectus/offer to exchange entitled “Currencies.” Cadbury translated its historical financial information based on the requirements of IFRS. Based on its review of Cadbury’s historical financial statements and understanding of the differences between U.S. GAAP and IFRS, Kraft Foods is not aware of any further adjustment that it would need to make to Cadbury’s historical financial statements relating to foreign currency translation. The pro forma adjustments in this table have been translated from £ to $ using Kraft Foods’ historic exchange rates. The average exchange rates applicable during the periods presented for the unaudited pro forma consolidated statements of earnings and the period end exchange rate for the unaudited pro forma consolidated balance sheet are:

 

				$/£1
December 31, 2008		Average Spot Rate		1.8758
June 30, 2009		Average Spot Rate		1.4812
June 30, 2009		Period End Rate		1.6439

The following pro forma financial statements should be read in conjunction with:

 

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the accompanying notes to the Unaudited U.S. GAAP Pro Forma Financial Information;

 

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the consolidated financial statements of Kraft Foods for the year ended December 31, 2008 and for the six months ended June 30, 2009 and the notes relating thereto, incorporated herein by reference;

 

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the consolidated financial statements of Cadbury for the year ended December 31, 2008 and for the six months ended June 30, 2009 and the notes relating thereto, incorporated herein by reference; and

 

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the section of this prospectus/offer to exchange entitled “Summary of Significant Differences Between IFRS and U.S. GAAP.”

 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS

For the six months ended June 30, 2009

(in millions of U.S. dollars, except common share amounts and as indicated)

 

									Pro Forma Adjustments
		Kraft Foods				Cadbury IFRS (in £)			Cadbury IFRS (in $)			Cadbury U.S. GAAP Adjustments				Transaction Adjustments				Note		Pro Forma Kraft Foods
Net revenues		$	19,558			£	2,767		$	4,098		$				$	(798	)		4(c)		$	22,858
Cost of sales			12,628										2,191				(480	)		3(d), 3(j), 4(c)			14,339
Gross profit			6,930				2,767			4,098			(2,191	)			(318	)					8,519
Marketing, administration and research costs			4,131				2,461			3,645			(2,155	)			(150	)		3(c), 3(g), 3(j), 4(c)			5,471
Asset impairment and exit costs			(26	)			105			156													130
Losses / (gains) on divestitures, net			17																				17
Amortization of intangibles			9										24				9			3(b), 3(j), 4(d)			42
Operating income			2,799				201			297			(60	)			(177	)					2,859
Interest and other expense, net			592				89			132			(9	)			117			3(d), 3(j), 4(e)			832
Earnings from continuing operations before income taxes			2,207				112			165			(51	)			(294	)					2,027
Provision for income taxes			716				33			49			(13	)			(96	)		3(i), 4(g)			656
Earnings from continuing operations			1,491				79			116			(38	)			(198	)				$	1,371
Noncontrolling interest			4																				4
Earnings from continuing operations attributable to shareholders		$	1,487			£	79		$	116		$	(38	)		$	(198	)				$	1,367
Per share data attributable to shareholders:
Basic earnings per share from continuing operations		$	1.01																			$	0.79
Diluted earnings per share from continuing operations		$	1.00																			$	0.78

See notes to pro forma financial statements.

 

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UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS

For the year ended December 31, 2008

(in millions of U.S. dollars, except common share amounts and as indicated)

 

									Pro Forma Adjustments
		Kraft Foods			Cadbury IFRS (in £)				Cadbury IFRS (in $)				Cadbury U.S. GAAP Adjustments				Transaction Adjustments				Note		Pro Forma Kraft Foods
Net revenues		$	41,932		£	5,384			$	10,099			$				$	(1,440	)		4(c)		$	50,591
Cost of sales			28,088											5,390				(924	)		3(d), 3(j), 4(c)			32,554
Gross profit			13,844			5,384				10,099				(5,390	)			(516	)					18,037
Marketing, administration and research costs			8,862			4,802				9,008				(5,365	)			(249	)		3(c), 3(g), 3(j), 4(c)			12,256
Asset impairment and exit costs			1,024			194				364														1,388
Losses / (gains) on divestitures, net			92																					92
Amortization of intangibles			23											60				18			3(b), 3(j), 4(d)			101
Operating income			3,843			388				727				(85	)			(285	)					4,200
Interest and other expense, net			1,240			(12	)			(23	)			45				235			3(d), 3(j), 4(e)			1,497
Earnings from continuing operations before income taxes			2,603			400				750				(130	)			(520	)					2,703
Provision for income taxes			755			30				56				(34	)			(167	)		3(i), 4(g)			610
Earnings from continuing operations			1,848			370				694				(96	)			(353	)					2,093
Noncontrolling interest			9			2				4														13
Earnings from continuing operations attributable to shareholders		$	1,839		£	368			$	690			$	(96	)		$	(353	)				$	2,080
Per share data attributable to shareholders:
Basic earnings per share from continuing operations		$	1.22																				$	1.18
Diluted earnings per share from continuing operations		$	1.21																				$	1.17

See notes to pro forma financial statements.

 

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UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET

As at June 30, 2009

(in millions of U.S. dollars, except as indicated)

 

									Pro Forma Adjustments
		Kraft Foods				Cadbury IFRS (in £)			Cadbury IFRS (in $)			Cadbury U.S. GAAP Adjustments				Transaction Adjustments				Note		Pro Forma Kraft Foods
ASSETS
Cash and cash equivalents		$	1,731			£	266		$	437		$				$	(435	)		4(b)i.		$	1,733
Short-term investments							98			161													161
Receivables			4,646				923			1,517			(395	)						3(j)			5,768
Inventories, net			4,011				849			1,396							(85	)		4(a)i.			5,322
Deferred income taxes			682										260							3(j)			942
Other current assets			618				166			273			395							3(j)			1,286
Total current assets			11,688				2,302			3,784