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Hershey and Ferrero could bid for Cadbury

By Guy Montague-Jones , 18-Nov-2009

Hershey and Ferrero are reported to be considering a joint bid for Cadbury that could put the brakes on a hostile takeover by Kraft.

The Wall Street Journal reported yesterday that Hershey and Ferrero have held preliminary talks about a possible bid. According to the newspaper, the companies are very early on in the process and have yet to discuss financial details.

But it is the first major sign of a rival to the £9.8bn ($16.3bn) Kraft offer that Cadbury dismissed as “derisory” and Bernstein analyst Andrew Wood called “somewhat contemptuous”.

Serious rival

Talk of a rival bid is good news for Cadbury and helped lift the company shares in trading. The appearance of another serious bidder may result in an offer that comes closer to a figure that Cadbury considers to be of interest to shareholders.

Earlier in the day, Italian publication Il Sole 24 Ore suggesting that family-owned Ferrero may be considering an alliance with Cadbury.

Commenting on this potential merger, Nomura analyst Alex Smith said: “Investors may have a preference to back this longer-term potentially more attractive story than sell now to one (currently) uncontested bidder.”

Attractions

Ferrero has a strong presence in France, Germany in Italy, where Cadbury is currently weak. This makes the combination attractive, according to Smith.

“The other attraction for Cadbury shareholders is they would continue to hold shares in a higher-growth-focused confectionery company (with a potentially retained UK listing) rather than being paid c.50 per cent equity in a lower-growth US-listed conglomerate,” added Smith.

But Smith said it is difficult to judge whether Ferrero has the financing capacity for a merger because it is an entirely family controlled entity.

Erin Swanson, an equity analyst with Morningstar, said he thought a combined Hershey-Ferrero bid sounds like the most credible alternative to the Kraft offer.

“It doesn’t appear that either Ferrero or Hershey is in the financial position of taking on Cadbury all by themselves”, said Swanson.

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