Kraft Shows Its Hand and Cadbury Slaps It

Kraft’s (KFT) decision to stand pat on its offer for Cadbury (CBY) should come as no surprise to readers of ResearchRecap. From the beginning, we doubted that Kraft’s initial “indicative offer” would set off a bidding war. Other potential bidders each have their own impediments to making a bid and Kraft itself is constrained in how much it can raise its offer by credit issues. And the fall in Kraft’s share price means the company’s formal bid is actually worth less than the original one.

With Cadbury’s swift and firm rejection of the formal offer from Kraft we appear set for a period of standoff before learning whether a deal will ultimately be consummated.

Of course, now that Kraft has placed its cards on the table, other bidders could still emerge or Cadbury could find a white knight partner. Kraft has 28 days to post the offer documents. It then has a few more weeks to revise the price, taking us into next year.

Analysts expect the most obvious candidate, Hershey (HSY) to remain on the sidelines. Several analysts expect Kraft to eventually improve the bid, mainly by increasing the cash component, but not by much, absent any competing bidders. And as we have pointed out before, it is not a foregone conclusion that the two companies will reach agreement.

DealJournal has a roundup of analyst comments, as does Reuters, and Dealbook has a roundup of the story so far.