Cadbury is expected to hold out for a price of between £8 and £9 per share after Kraft’s initial bid of £7.45 per share was dismissed by the UK confectionery manufacturer. Nestlé and Hershey are among the companies touted as rival bidders for the Cadbury business.
“The ultimate take out price depends on whether a second bidder comes into play,” Panmure Gordon analyst Graham Jones told FoodNavigator.com. “£8 feels like a right price, but if it becomes competitive Cadbury could even expect £9.”
Dual bid likely
Jones said he believed a consortium of Hershey and Nestlé is the most likely opposition to Kraft buying the business. Nestlé is prevented from buying Cadbury’s chocolate business outright for competition reasons in its core markets such as the UK.
“The most likely scenario is that Hershey takes on the chocolate business and Nestlé takes on the rest of Cadbury,” Jones added.
Hershey has its own restraints on major acquisitions as the US confectioner is controlled by a charitable trust, which must approve all deals.
Analysts, however, are united in their belief that Cadbury is unlikely to hold onto its independence now the bidding process has begun. “Cadbury has done a good job over the last 18 months of getting margins up to nearer where they should be, but they have always looked vulnerable to a takeover bid since losing the drinks business,” said Jones.
The ball is now firmly in the court of the Cadbury board to prove that its prospects are brighter as a standalone entity, said Neil Saunders, consulting director of Verdict Research. “While it is fine to reject the offer, the board must demonstrate how it intends to grow the business over the next few years and give shareholders a very compelling alternative strategy.”
One thing in Kraft’s favour is the make-up of Cadbury shareholders. The vast majority of major investors are US institutions, making patriotism an unlikely motive for shareholders digging their heels in. What’s more, activist investor Nelson Peltz is a major investor in both Kraft and Cadbury and played a significant role pushing through the spin off of the Americas Beverages business. “Peltz will think a Kraft sale is a great idea,” said Jones. “Shareholders are likely to sit tight for the time being and wait for a higher bid.”
Kraft has also struck a populist blow by vowing to keep open Cadbury’s Somerdown factory in Bristol, which has been due to close as Cadbury shifts production to Poland.
“With this now being a very public matter, both sides will be keen to win over not only shareholders, but also public opinion,” said Saunders.