Rumors Heat Up on Cadbury Takeover as Deadline Looms

Includes: CBY, MDLZ
by: Research Recap

Latest developments in Kraft’s (KFT) pursuit of Cadbury (CBY):

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 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. (NYSE: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. Unilever NV (NYSE:UN) and Nestle might be interested in other deals out there. General Mills (NYSE: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.

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