Share This Article

Facebook LinkedIn
Twitter Reddit
Print Email
Pinterest Gmail
Yahoo
Money Morning
×
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
  • Retire
    • Income Investing Guide
    • Retirement Articles
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
Login My Member Benefits Archives Research Your Team About Us FAQ
  • Invest
    • Best Stocks to Buy
    • Stock Forecasts
    • Stocks to Sell Now
    • Stock Market Predictions
    • Technology Stocks
    • Best REITs to Buy Now
    • IPO Stocks
    • Penny Stocks
    • Dividend Stocks
    • Cryptocurrencies
    • Cannabis Investing
    • Angel Investing
    ×
  • Trade
    • How to Trade Options
    • Best Trades to Make Now
    • Options Trading Strategies
    • Weekly Trade Recommendations
    ×
  • Retire
    • Income Investing Guide
    • Retirement Articles
    ×
  • More
    • Money Morning LIVE
    • Special Investing Reports
    • Our ELetters
    • Our Premium Services
    • Videos
    • Meet Our Experts
    • Profit Academy
    ×
  • Subscribe
Enter stock ticker or keyword
×
5 Ways to Beat the Fed (and Crush Inflation)
Twitter
Tags: Bob Blandeburgo, Cadbury, Consumer Spending, Hershey, Kraft Foods, Mars, Nestle

Kraft's Bid for Cadbury Not Sweet Enough

By Bob Blandeburgo, Associate Editor, Money Morning • September 10, 2009

View Comments

Start the conversation

Comment on This Story Click here to cancel reply.

Or to contact Money Morning Customer Service, click here.

Your email address will not be published. Required fields are marked *

Some HTML is OK

Kraft Foods Inc.'s (NYSE: KFT) $16.7 billion unsolicited takeover attempt of Cadbury PLC (NYSE ADR: CBY) is the latest sign of consolidation in the highly competitive food industry, and will likely lead to two things: A bidding war for Cadbury and further consolidation in the sector.

The world's second-largest foodmaker went public with its bid for Cadbury earlier this week after being snubbed privately. Kraft's offer - a 31% premium to the chocolate maker's Friday closing price of $37.46 a share, but less than  - "fundamentally undervalues" Cadbury, it said. The offer is less than 15 times Cadbury's 2008 earnings before interest, tax, depreciation and amortization (EBITDA).

"Any follow-up offer by Kraft would likely involve a higher price," Moody's Investor Service senior analyst Brian Weddington said in a note. "The increased leverage that would result under the proposed transaction would be considerable."

Increased leverage could be a boon to Cadbury and its investors, as The Hershey Co. (NYSE: HSY) will likely throw its hat into the bidding ring, one person familiar with the matter told The Wall Street Journal.

"Hershey recognizes that Cadbury is the last major confectionery company potentially available and, as such, is likely to make some response," the person told The Journal. Nestle Chief Executive Officer said his company is always "open to acquisition opportunities if they fit strategically."

Some analysts have Hershey teaming up with rival Nestle SA to make a joint offer for Cadbury and splitting its business, Reuters reported.

If Kraft and Cadbury can reach an agreement, it would be "bad news" for Nestle, Icap PLC analyst Andy Smith told Bloomberg News. "[Nestle has] the firepower to counter if they want."

Cadbury and Kraft's combined sales in 2008 were $51 billion, roughly half of Nestle's in the same period.

Sign up for SMS so you never miss special events, exclusive offers, and weekly bonus trades.

However, Hershey's position is less flexible.

The Pennsylvania chocolate maker has $1.7 billion in net debt and a market capitalization of $8.9 billion. Cadbury is valued at $17.7 billion, so any takeover by Hershey would require serious financing, according to The Journal.

Hershey could pursue a joint effort with Nestle, but that would mean turning Cadbury's lucrative gum business over to the Swiss candy company to take to avoid antitrust issues.

Cadbury has almost 29% of the global gum market. The other big player in the sector is privately held Mars Inc., which became the world's largest confectioner last year when it teamed with Warren Buffet's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) to buy chewing gum icon Wm. Wrigley Jr. Company for $23 billion. Berkshire owns about 9.4% of Kraft's shares, according to Reuters.

In January 2007, Cadbury Chief Executive Officer Todd Stitzer agreed with Hershey's then-Chief Executive Officer Richard Lenny to remove that obstacle and suggested they create a "global confectionary powerhouse." But any potential merger was held back by Cadbury's beverage business, which included Dr. Pepper and Snapple.

Cadbury spun off its beverage business in May 2008, which resulted in the birth of the Dr. Pepper Snapple Group Inc. (NYSE: DPS).

Chances for a reverse scenario of Cadbury acquiring Hershey are slim, as the Hershey Trust is set on protecting the Hershey name and keeping it an American company.

"Simply put: We will not sell the Hershey Co.," Hershey Trust Chairman LeRoy Zimmerman said in an opinion piece published last year in the Patriot-News of Harrisburg, PA.

While a number of analysts expect Kraft to raise its bid for Cadbury, the foodmaker is in a tight position because it does not have that much room to maneuver without threatening its balance sheet or risking its investment grade credit rating. The company already has almost $19 billion of bonds outstanding, according to Bloomberg.

Other companies mentioned as possible suitors are Kellogg Co. (NYSE: K) and PepsiCo Inc. (NYSE: PEP).

The worst economic downturn since the Great Depression and rising commodity costs have sent consumers looking for less expensive products at the grocery store, limiting companies' ability to grow. As with Mars' acquisition of Wrigley last year, companies are looking to consolidation for growth.

"Consolidation in the food sector has long been anticipated," an unnamed merger advisor told Reuters. "Given the drop in [bottled] water revenues, Nestle and Danone are thought to look at acquisitions to spur revenue growth."

For Kraft, a successful acquisition of Cadbury would spur its growth by expanding its presence in emerging markets like China, Brazil, Russia, and especially India. Cadbury is deeply entrenched in British Commonwealth nations such as India, where it has been selling chocolate for more than 60 years.

A takeover of Cadbury India "would open up a $500 million chocolate market which is growing at 15% per year," Angel Broking Ltd. analyst Anand Shah told The Journal.

"I believe that in the current global economy, the growth prospects are constrained," said Kraft Chief Executive Officer Irene Rosenfeld.

Shares of Kraft closed at $26.85 yesterday (Wednesday), up 1.51% or 40 cents, while Cadbury closed at $51.80, down .15%, or eight cents.

News and Related Story Links:

  • Reuters:
    Kraft's Latest European Foray Could Spur More Deals
  • The Wall Street Journal:
    Hershey Weighs Cadbury Options
  • Bloomberg News:
    Cadbury May Fetch $21 Billion If Rivals Trump Kraft
  • The Wall Street Journal:
    Hershey Challenge to Kraft Offer Looks Like a Tall Order
  • Money Morning:
    Mars Teams up With Berkshire Hathaway and Warren Buffett in $23 Billion Buyout of Wrigley
  • Bloomberg News:
    Kraft in Talks to Finance $8 Billion for Cadbury Bid
  • Money Morning:
    Six Ways to Profit From Guru Jim Rogers' Prediction That Sugar is Sweeter Than Gold
  • The Wall Street Journal:
    Kraft Covets Cadbury's Place in Emerging Markets

Join the conversation. Click here to jump to comments…

Login
guest
guest
5 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
trackback
Trusted Brand Names Will Point the Way to the Top IPO and M&A Profit Plays
13 years ago

[…] just look at the deal that seems to have fired off the latest round of global M&A deals: The $16.7 billion unsolicited takeover bid that Kraft Foods Inc. (NYSE: KFT) launched for Cadbury PLC (NYSE ADR: CBY). For Kraft, […]

0
Reply
trackback
How to Find the Best Potential Profit Plays in the Resurgent M&A and IPO Markets
13 years ago

[…] latest flurry of M&A deals, the buyout play that caught the imagination of investors was the $16.7 billion unsolicited takeover bid that Kraft Foods Inc. (NYSE: KFT) launched for Cadbury PLC (NYSE ADR: CBY). Not only was it the […]

0
Reply
trackback
Verisk and Santander Ignite Resurgent IPO Market
13 years ago

[…] the M&A market, the elephant in the room is Kraft Foods Inc.'s (NYSE: KFT) unsolicited $16.7 billion takeover bid for Cadbury PLC (NYSE ADR: CBY). For Kraft, Cadbury's allure is its stable of established […]

0
Reply
trackback
Two Reasons the Dow's Rally to 10,000 Will Keep Moving Ahead
13 years ago

[…] Kraft Foods Inc. (NYSE: KFT) has headlined a resurgence in M&A activity with its $16.7 billion bid for Cadbury PLC (NYSE ADR: CBY). Abbott Laboratories (NYSE: ABT), a smaller rival of drug-industry bellwether […]

0
Reply
trackback
Kraft Launches Hostile Bid for Cadbury
13 years ago

[…] Morning: Kraft's Bid for Cadbury Not Sweet Enough AKPC_IDS += "11848,"; More on this topic (What's this?) Kraft Foods freezes dividends […]

0
Reply


Latest News

May 31, 2023 • By Garrett Baldwin

A picture containing text, screenshot, font, line Description automatically generated
Postcards from the Florida Republic (May 31)

May 31, 2023 • By Money Morning News Team

Strong Housing Market, AI Rally and Sticky Inflation

May 30, 2023 • By Chris Johnson

A.I., Oil, and Interest Rates - Oh My
Trending Stories
ABOUT MONEY MORNING

Money Morning gives you access to a team of market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.

QUICK LINKS
About Us COVID-19 Announcements How Money Morning Works FAQs Contact Us Search Article Archive Forgot Username/Password Archives Profit Academy Research Your Team Videos Text Messaging Terms of Use
FREE NEWSLETTERS
Total Wealth Research Power Profit Trades Profit Takeover Penny Hawk Trading Today Midday Momentum Pump Up the Close
PREMIUM SERVICES
Money Map Press Home Money Map Report Fast Fortune Club Weekly Cash Clock Night Trader Microcurrency Trader Hyperdrive Portfolio Rocket Wealth Initiative Extreme Profit Hunters Profit Revolution Quantum Data Profits Live Trading Alliance Trade The Close Inside Money Trader Expiration Trader Flashpoint Trader Darknet Hyper Momentum Trader Alpha Accelerators Weekly Profit Cycles Brutus Alerts Resource Traders Alliance

© 2023 Money Morning All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning.

Address: 1125 N Charles St. | Baltimore, MD, 21201 | USA | Phone: 888.384.8339 | Disclaimer | Sitemap | Privacy Policy | Whitelist Us | Do Not Sell or Share My Personal Information

wpDiscuz