Research Update: Kraft and Cadbury Circle the Dance Floor
The Kraft-Cadbury merger dance is looking increasingly like a pas de deux, as no other bidders for the British company have emerged. Research Recap earlier outlined some of the obstacles for other potential bidders, but it is also they are a waiting for a firm offer from Kraft (KFT) before showing their hands. Cadbury (CBRY) has upped the ante by asking the UK Takeover Panel to force Kraft to “put up or shut up,” which as Lex says “puts pressure on its suitor to show the real colour of its money….The likelihood that Kraft has to come back with a knock-out offer is increased.”
“The Cadbury move slightly accelerates the process and forces the hand of any other bidders,” says Simon Marshall-Lockyer, analyst at Jefferies International. Cadbury is the kind of acquisition that only comes around “once in a lifetime”, he adds.
Weighing in Cadbury’s favour is the cash and stock mix of Kraft’s indicative offer, the Financial Times reports, comparing and contrasting the deal with the all-cash InBev/Anheuser-Busch deal. The relatively small cash component (of the Kraft proposal) was not well-received by many investors.
Cadbury CEO Todd Stitzer strikes a conciliatory stance in the WSJ, saying “I would never say there’s not some strategic sense in these businesses coming together .”
If a higher bid does not materialize, I think our shareowners will have to decide whether or not the value of our plan or the value of whatever offer’s on the table is appropriate.
Reuters reports Stitzer and Kraft’s Irene Rosenfeld are attending the two-day Bank of America/Merrill Lynch Global Consumer and Retail Conference on Tuesday and Wednesday and meeting with investors individually or in small groups.
“Both are speaking to their investors today, but they are not expected to meet each other,” one source with knowledge of the situation said.
JP Morgan does not expect any more bidders to emerge and thinks Kraft could increase its offer to 820p from 745p to close a deal. Unicredit believes Kraft could pay up to 870p before it risks losing its investment grade bond rating, and a comparison of previous similar “hostile” deals implies a price of around 840p. Bank of America Securities/Merrill Lynch says its “a matter of time” with a deal likely closing around 860p.
Jim Cramer thinks Kraft would be making a big mistake if it bought Cadbury, and suggests making a bid for Hain Celestial (HAIN), given the popularity of health food over sweets like Cadbury that “rot your teeth and make you fat.” Popular food store Whole Foods doesn’t stock a single Cadbury product, while Terra chips, Celestial Seasonings teas and other Hain products are always seen on the shelves at Wal-Mart and other stores.
On the other hand, the growing evidence that chocolate has healthful effects at least gives people justification for indulging their sweet teeth.
For latest analyst comment on the deal, see Alacra Street Pulse.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
