The British chocolate war has hotted up with US reports that Hershey plans to bid at least $US17.9 billion next week for Cadbury against Kraft Foods’ $US17.2 billion offer.
The Wall Street Journal reports that Hershey is putting the finishing touches on a financial package that includes a loan of at least $US10 billion from banks including JP Morgan Chase and Bank of America Merrill Lynch.
Quoting un-named sources, the Journal says the offer is also likely to include $US5 billion in new Hershey shares and at least $US3 billion from private investors.
Such a bid would be worth 800-820p per Cadbury share, compared with Kraft’s 770p a sharemerket value of about 794p.
Both Cadbury and UK commentators have described Kraft’s bid – first signaled back in September – as “derisory” and that it would take at least an 800p offer to shift shareholders, many of whom are now hedge funds seeking a quick profit.
For its part, Kraft has the option of increasing its offer under UK takeover rules by next Tuesday; otherwise it is stuck with lower offer should the Hershey bid emerge.
At the same time, Hershey would then have a deadline to make its approach that would be set by the UK takeover panel.
Questions that arise, according to the Journal, are:
• If Hershey has enough financial firepower to top Kraft, should the American food company raise its own bid?
• Does Kraft have enough support from shareholders to raise its offer, having been previously rebuked by investor Warren Buffett about its approach?
Kraft is five times bigger than Hershey and in a high-stakes game has the ability to beat off any rival.
Cadbury executives have expressed a preference for Hershey, which is controlled by trust and has is generally averse to carrying a lot of debt as it generates returns for the trust’s charitable beneficiaries.
A Cadbury-Hershey merger, saddled with debt, would not be an entirely good outcome, according to some observers. Similarly, Kraft shareholders, used to poor returns, are not keen on their shares being further diluted by a successful Cadbury takeover.
Meanwhile, Kraft chief executive Irene Rosenfeld has been on a charm offensive to London, trying to woo Cadbury shareholders.
Her efforts have naturally failed to impress, according to the UK press – the Daily Telegraph said major Cadbury shareholders were “underwhelmed” – and that Kraft will likely have to raise the cash part of its offer.
In a separate story, the Telegraph’s business commentator raises doubts that Hershey’s bid, though a welcome distraction for Kraft, does not stack up.
Sat, 16 Jan 2010