Regular readers of Research Recap won’t be surprised by Warren Buffett’s characterization of Kraft’s (KFT) pending takeover of Cadbury (CBRY) as “a bad deal.” LAst September Kraft we wrote that “it was hard to see this deal being consummated at reckless cost. ‘No deal’ may disappoint those looking for a revival of the M&A market, but that may be better than a bad deal.” We also noted back then that a bidding war was unlikely, and true enough no other bidders have put their money down.
Buffett earlier warned Kraft’s Irene Rosenfeld against paying too much. Today he told CBNC “She thinks this is a good deal, I think it’s a bad deal. I think she’s a perfectly decent person. She could be a trustee under my will. I just don’t want her making this particular deal.”
Ironically, Buffett’s comments reduced the value of the deal to 830p per share from 840p based on the decline in Kraft’s share price following his remarks.
Another Kraft investor, Pershing Square’s Bill Ackman was more positive, saying that Kraft paid a fair price.
And as FT Alphaville reports, Sanford C. Bernstein’s Andrew D. Wood thinks Kraft got an outstanding asset at a very cheap price. Martin Deboo of Investec Securities concurs:
For Kraft, the capture of Cadbury looks to us like a fulsome reward for a piece of striking opportunism and a well-conducted bid strategy.
Reuters Breakingviews calculates that with Cadbury’s help, Kraft should be able to achieve cost savings of 7.5 percent of Cadbury’s annual £6 billion in sales. “That would imply synergies with a present value of more than £3 billion. On this math, Kraft might have justified a bid close to 900 pence a share.”
“Although we always considered that 850 pence could be enough to win shareholder support, we have to admit surprise at how meekly Cadbury has apparently acquiesced,” said Jeremy Batstone-Carr, analyst at Charles Stanley & Co.
Moody’s suggested Kraft would hold onto its investment grade rating while Fitch lowered its ratings on Kraft and Cadbury’s debt to the lowest investment grade.
“My worry is they ruin [Cadbury],” D.A. Davidson analyst Timothy Ramey, told USA Today, cutting his rating on Kraft to “hold” from “buy.” But Standard & Poor’s analyst Tom Graves doesn’t see the price as too onerous but says that it now has to put execution where it mouth has been.
“This is a transformative deal in terms of what they are pursuing,”said Edward Jones analyst Matt Arnold.
However the cookie (or biscuit), crumbles, we should at least see an end soon to the confectionary puns and metaphors.
Technorati Tags: (KFT), Cadbury, CBRY, confectionary, food, Kraft
Kraft’s Rosenfeld seen raising Cadbury bid, but not much beyond 800p
US foreclosures in Dec up 14% from Nov and up 15% from Dec 08; total for 2009 up 21% from 2008 (RealtyTrac)
Hershey may yet enter the ring for Cadbury
Mayflower Hotel looks to restructure $200 million debt
Manhattan has 38% more office space for rent than a year ago on Wall Street job cuts
Retail sales became more concentrated among the world’s 10 largest retailers in 2008 (Deloitte Global Powers Rankings)
China’s share of global consumption to increase from 5.2% in 2009 to 23.1% in 2020, overtaking the US (Credit Suisse)
Technorati Tags: (HSY), (KFT), Cadbury, CBRY, china, commercial-real-estate, foreclosures, Hershey, hotels, Kraft, retailers
There’s little sign of Kraft (KFT) getting any closer to acquiring Cadbury (CBRY) as the bid deadline approaches.
Cadbury today continued its vigorous rebuffing of Kraft, announcing a strong forecast for 201o and pouring scorn on Kraf’ and its “derisory” and “inadequate” offer.
Roger Carr, chairman of Cadbury, said the Kraft shares in the bid also exposed Cadbury “shareholders to Kraft’s low-growth conglomerate business model, its long history of underperformance and its track record of missed targets.”
Kraft will publish the final details of its offer on Jan. 19, and Cadbury shareholders have until Feb. 2 to decide whether or not they will accept it.
Martin Deboo at Investec Securities believes “Kraft will need to come up with an offer north of 8 pounds and with a significantly enhanced cash component to take over Cadbury.”
“We suspect that an increased offer in the range of 825-850p could well be sufficient to clinch the deal,” said analyst Graham Jones at Panmure Gordon.
Bloomberg reported that the strong report “doesn’t add anything new to the debate in our view,” Nomura International analyst Alex Smith wrote today. “We still see a majority probability of a successful Kraft takeover at a higher price of around 840 pence.”
Cadbury shares closed off 0.5 percent at 775.6p on Tuesday. Kraft’s shares rose 19 cents to $28.99, meaning that Cadbury shares were trading at a 1.5 percent premium to the current value of Kraft’s offer, according to Dealbook.
Now that it seems unlikely that a rival bid will emerge, Kraft only needs to calculate the minimum it can pay to win Cadbury, without alienating shareholder Warren Buffett who has warned Kraft against overpaying. Italy’s Ferrero has decided not to bid for Cadbury. A source close to the situation told Reuters that Ferrero would not proceed with a bid. A second source close to Ferrero said the company had ceased talking with Hershey , a potential partner in a rival bid.
Execution analyst Martin Dolan believes that Cadbury will end up being acquired by Kraft, but that the the current offer is inadequate.
Without a higher bid, Cadbury may still stay independent.
For latest analyst comment see Alacra Pulse.
For previous Research Recap posts on the topic click here.
Technorati Tags: (KFT), Cadbury, CBRY, Kraft, M&A
Kraft’s (KFT) effort to acquire Cadbury (CBRY) got more complicated today as the UK confectioner heaped scorn on Kraft’s slightly sweetened offer, while Kraft shareholder Berkshire Hathaway took steps to discourage a higher Kraft bid.
No sooner had Nestle (NESN) cleared the way for Kraft by declining to bid, than Berkshire Hathaway voted against Kraft’s proposal to issue shares to finance part of the $16.5 billion bid, saying it was worried it gave Kraft a “blank check” to raise the bid even higher.
“We worry very much that, indeed, there will be an additional change from the revision announced this morning,” Berkshire said in its statement, according to Reuters
Buffett had already warned Kraft against paying too much for Cadbury, and investors said the new statement was a clear signal to tread carefully.
“If Buffett votes against something — that carries a great deal of weight with other shareholders,” said Jerry Bruni, CEO and portfolio manager of J.V. Bruni and Co, which holds Berkshire shares. “When he says no, no is what he says and means.”
Some analysts still believe that another suitor may emerge.
“We think that Hershey is keen to make a deal with Cadbury,” analysts at Numis stockbrokers wrote in a research note. “In reality Nestle is acting as a fund provider to the Cadbury deal and we would not be surprised to see the Swiss group play that role again by buying assets from Hershey, the KitKat brand in the U.S. being an obvious candidate.”
Dean Best at Just Food writes that “with uncertainty surrounding the prospect of any move from Hershey and Ferrero and Berkshire and Buffett’s disquiet over Kraft’s bid – the only one on the table – could mean that the odds have shifted, ever so slightly, towards Cadbury staying independent.”
For latest analyst comment see Alacra Pulse.
Technorati Tags: (HSY), (KFT), (NESN), berkshire-hathaway, Cadbury, CBRY, confectionery, Hershey, Kraft Foods, Nestle, warren-buffett
Latest developments in Kraft’s (KFT) pursuit of Cadbury (CBRY):
From DealBook:
The Sunday Times of London reports that Kraft is planning to increase its bid in the next two weeks, but provides no sourcing and few details.
Kraft’s cash-and-share offer currently values Cadbury at 736 pence a share, 8 percent below its closing price of 797.5 pence on Dec. 31.
Under Britain’s Takeover Panel rules, Kraft has until Jan. 19 to raise its offer, after which it can only do so if a rival bid emerges.
A report on Saturday suggested Italian confectioner Ferrero had met with private equity firms, as well as Hershey, to discuss a possible bid for Cadbury.
Cadbury said on Dec. 14 that Hershey and Ferrero had both indicated they were also contemplating bids.
However, The Sunday Times said that Cadbury’s chairman, Roger Carr, is expected to reject any bid from Hershey or Kraft unless it tops 800 pence a share.
Britain’s Takeover Panel gave Cadbury three extra days this week to publish its 2009 results that could become a key plank in its defense against Kraft’s bid.
Reuters reports that “Kraft Foods is set to clear a hurdle in its hostile 10 billion pound takeover bid for Cadbury by winning EU approval this week, a source familiar with the situation said on Monday.”
Deal Journal suggests Nestle (NESN) may use some of the proceeds of today’s Alcon deal to go after Cadbury: “Novartis is paying Nestle $28 billion for its 52% stake in Alcon, the eye-care company. Nestle says it plans to use about $9.65 billion of the proceeds to buy back shares. That means about $18 billion will be left over, enough to, perhaps, top Kraft Foods’ $16.9 billion bid for Cadbury.”
But Bloomberg reports that the buyback may signal no big acquistions by Nestle. “They’re basically telling you that they aren’t planning a major acquisition, but it still leaves them with the flexibility if a strategic opportunity comes by,” said Marco Gulpers, who has a “hold” recommendation on Nestle shares as an analyst at ING Wholesale Banking.
John Ogg at 24/7 Wall Street speculates that a deal for Cadbury would spur more M&A activity in the sector: “ConAgra Foods, Inc. (CAG) would suddenly look tiny when compared to Kraft as ConAgra’s market cap is about $10.2 billion versus about $40 billion for Kraft (KFT). Unilever NV (UN) and Nestle might be interested in other deals out there. General Mills (GIS) would risk being small despite a $23 billion market cap. HJ Heinz (HNZ) would suddenly be a small fish despite a $13.5 billion market cap, and farther down the chain is Hershey with its $8.15 billion market cap.
For latest analyst comment see Alacra Pulse.
Technorati Tags: (CAG), (GIS), (HSY), (KFT), (NESN), (UNA), Cadbury, CBRY, ConAgra, confectionery, Ferrero, General Mills, H.J. Heinz, Hershey, Kraft Foods, M&A, mergers and acquisitions, Unilever
Useful free background paper from PwC on Cleantech Infrastructure development (via @Cohen_Yoni) http://bit.ly/4DuIi1
Credit Suisse projects non-Japan Asia economic growth at 8.0% in 2010 even as monetary policy tightens http://bit.ly/86i1Xt
Fannie, Freddie, AIG need more money from the government to pay the government (NY Times) $FNM $FRD$AIG http://bit.ly/7q5Y1c
RT @zerohedge: New post: Too Bigger To Fail? St. Louis Fed Warns Risk Concentration Of Ever Growing “Big Banks” http://tinyurl.com/yaaf8fn
China’s economy growing at annual rate of close to 10% in current and next quarter, Deloitte says http://bit.ly/7YnaZy
WEF/HBS Study Finds Some Government Help Good For Venture Capital (via VentureWire) http://bit.ly/8fV3Q4
Another reason for reasonable people to be disgusted with big banks, government: Huge IRS tax break for Citi $C http://bit.ly/7ilByE
Online US Holiday Season Spending Accelerates in Latest Week to Up 4 Percent for Season-to-Date (comScore) http://bit.ly/6q1w02
RT @OECD: US, UK & France are top OECD countries in venture capital investments, says OECD STI Scoreboard http://bit.ly/8Z7mDj
Aaa countries probably cannot wait for full recovery before announcing credible fiscal consolidation (Moody’s) http://bit.ly/91biMp.
RT @DickBoveSays: “What does [Citi repayment] do for the co.? Mgmt. can increase salaries…What else? Nothing.” $C http://bit.ly/5EelX3
RT @comScore: Over 2/3 Credit Card Consumers Modify Spending Habits or Change Providers in Response to Issuer Changes http://bit.ly/83RPTh
Cadbury vigorously rejects Kraft offer, cites interest from other bidders $CBRY $KFT $HSY http://bit.ly/6O1Xqj and http://bit.ly/694LiL
RT @alacra1: Investors Business Daily highlights Seeking Alpha; @AlacraPulse; @stocktwits and @stockpickr http://bit.ly/6PLv2h
Outlier Alert: Legg Mason’s Bill Miller says US GDP could reach 7-8% in 2010 via @graubart $$ http://bit.ly/72uiNT
Ginnie Mae continuing to back issuers of risky mortgage loan securities (Washington Post) http://bit.ly/4uo2CK
Interesting post on coming @yodlee revolution in online consumer banking by @felixsalmon at Reuters http://bit.ly/5gyOor
Technorati Tags: twitter summary
Despite the vigor of Cadbury management’s rejection of Kraft’s takeover offer, it has not moved the needle much on the deal. While Cadbury (CBRY) alluded to interest from other potential buyers or merger partners, such as Hershey (HST) and Ferrero, Kraft (KFT) is under no immediate pressure to raise its offer unless and until something concrete emerges.
Cadbury is trading about 8% above the offer price, a premium that could easily be erased (or expanded) by a change in Kraft’s stock price and/or currency fluctuations. Indeed, Kraft today stuck to its guns, suggesting it had no intention of raising its bid.
Andrew Wood, an analyst at Bernstein Research said: ‘We consider that the increased medium-term guidance plays directly to the ‘true’ value of Cadbury, which should incentivise-Cadbury shareholders to hold out for a higher bid.’
But Charles Stanley analyst Jeremy Batstone-Carr said market reaction to Kraft’s response was muted because it essentially altered little in the takeover battle.
“Whilst Kraft may question the credibility of Cadbury’s defence strategy, investors could raise the same concerns regarding Kraft’s recent sub-sector operating performance and its international expansion-integration plans,” he said.
Lex notes that based on valuations of its peer group, an earnings multiple of 16 times would suggest a standalone valuation in the region of 700p per share, before including any takeover premium. “Even in the absence of a competing bid, it now seems inevitable that Kraft must move its offer closer to the 850p per share suggested by past food deal valuations to succeed.”
Batstone-Carr is recommending investors reduce Cadbury shareholdings because Kraft may be unable to justify an offer price around the 850 pence many analysts believe is necessary to win Cadbury.
Lacking a credible alternative bidder, Kraft can sit tight until after the holidays to decide whether to reconsider its bid.
A transcript of Cadbury’s formal response is here.
Previous ResearchRecap posts on this topic are here.
For the latest analyst comments see Alacra Street Pulse.
Technorati Tags: (HSY), (KFT), (NESN), Cadbury, CBRY, confectionery, Ferrero, food industry, Hershey, Kraft Foods, M&A, mergers and acquisitions, Nestle
Required reading for executives: Integrity is good for business performance (Interview with HBS’s Michael Jensen) http://bit.ly/86szJq
“Negative equity may be a necessary condition to trigger default, but it is not a sufficient one.” (via HousingWire) http://bit.ly/7YU2xj
Pershing Square Ackman’s bullish shopping mall REIT presentation from ICSC conference http://bit.ly/6QB0Lk
US GDP growth to stay between 2% and 3% through 2011, unemployment 10%+ thru 2010 (UCLA Anderson) http://bit.ly/5VTZK5
U.S. Online Holiday Spending Up 3% from 2008 During Shopping Season to Date (comScore) http://bit.ly/7z97Bs
TransUnion Expects Improved US Mortgage and Credit Card Delinquencies by End of 2010 http://bit.ly/8bZZnH
RT @alacra1: Goldman Sachs Compensation Practices http://bit.ly/82uDAs $GS a 14-page PDF with graphs and charts…
Moody’s says US and UK sovereign debt not quite as AAA as France and Germany (via FT Alphaville) http://bit.ly/7A9APg
Moody’s, S&P and Fitch get Botoxed: Debt Raters Avoid Overhaul After Crisis (NY Times) http://bit.ly/4Ujg8Q
If credit agencies had followed their models, CDOs would have had lower ratings (UT paper at SSRN via Felix Salmon) http://bit.ly/8UYbkD
Delinquencies of US CMBS reach 4.06% in Q309, MBA says (via Housing Wire) http://bit.ly/8Ii7tt
It’s all about cable: Comcast deal values NBC broadcast operations at zero $CMCSA http://bit.ly/6FJ0Wu
Cadbury to respond to Kraft by Dec 14, Nestle and Hershey “in talks” $CBRY $KFT $NESN $HSY (via Alacra Pulse) http://bit.ly/6O1Xqj
RT @FTAlphaville: [Outlook 2010] JP Morgan forecasts 20% rise for Euro equities: http://buzzup.com/jrfg
Kraft formally sends takeover offer to Cadbury shareholders $KFT $CBRY http://bit.ly/6O1Xqj
Fitch: Dubai Has No Impact on State-Supported Corporate Ratings in Other Countries http://bit.ly/66b0O2
Bank bailouts appear to be paying off : U.S. gets billions back as Wall Street rebounds (LA Times) http://bit.ly/5olTX1
RT @FTAlphaville: [Outlook 2010] Goldman sees 2010 as ‘exciting, with risks!’. http://buzzup.com/jhbo
$1trn in Commercial Real Estate equity lost since 2007 peak: Keefe ,Bruyette & Woods study (via HousingWire) http://bit.ly/4XCUdH
Morningstar launches free Corporate Credit Ratings on 100 big US issuers, aiming to cover up to 1,000 companies http://bit.ly/6cnuWV
OECD-wide budget deficit is projected to reach more than 8% of GDP in 2010 – highest level in 60 yrs. http://bit.ly/6VaZQS
RT @footnoted: Interesting. RT @SecuritiesD: Hertz drops libel suit against Audit Integrity http://bit.ly/6×1EAH and http://bit.ly/7PSElF
Kraft still favorite to acquire Cadbury “but not at the ’steal’ it had originally hoped:” Bernstein’s Wood $KFT $CBRY http://bit.ly/6O1Xqj
U.S. default rate for commercial real estate mortgages reaches 3.4%, the highest rate since 4.1% in 1993 http://bit.ly/7lEDLg
Latin American countries have improved their fiscal and monetary resilience since 1971 – except Venezuela (OECD) http://bit.ly/8eNScs
FSA list of systemically important institutions includes Axa, Aegon, Allianz, Aviva, Swiss Re, Zurich + 24 banks (FT) http://bit.ly/8btRDK
Analysts are mostly skeptical about the likelihood of Hershey (HSY) and Ferrero mounting a successful joint bid for Cadbury (CBRY) to thwart Kraft’s (KFT) pending bid for the company. However, the threat of a rival bid may be enough to coax a slightly sweeter offer from Kraft.
Both Bloomberg and Reuters offer good summaries of analyst opinion and FT Alphaville weighs in with a JP Morgan analysis arguing that it is difficult to see how the financing would work for Hershey without it either almost doubling its existing equity (and convincing shareholders to buy it), or losing its investment grade credit rating.
The big question mark is how much equity can HSY raise from existing shareholders through a rights issue (we doubt Ferrero or Cadbury shareholders would take HSY non voting shares) without the Trust subscribing to the rights and HSY still keeping its dual class share structure. – JP Morgan
The FT’s Lex notes that, “to the distress of Cadbury shareholders hoping for a more full-fat alternative to Kraft’s cheeseparing bid, the likelihood of a Ferrero or Hershey offer – separately or jointly – remains slim.”
In Lex’s view Hershey would be better of partnering with Nestle (NESN).
However, Nestle may be more interested in Mead Johnson Nutrition (MJN) following its spinoff from Bristol-Myers Squibb (BMY). The maker of Enfamil baby formula would appeal to Nestle because of its strength in Latin America and Asia, says Claudia Lenz, an analyst at Bank Vontobel AG.
Previous ResearchRecap posts on this topic are here.
For the latest analyst comments see Alacra Street Pulse.
Technorati Tags: (BMY), (HSY), (KFT), (MJN), (NESN), Bristol-Meyers Squibb, Cadbury, CBRY, confectionery, Ferrero, food industry, Hershey, Kraft Foods, M&A, Mead Johnson Nutrition, mergers and acquisitions, Nestle
