City divided on Cadbury’s new suitors
THE City was yesterday divided over the prospect for a Cadbury bidding war as Ferrero and Hershey confirmed they were in early talks about a possible offer for the UK giant.
Some said that the presence of other potential bidders in the field would prompt Kraft to increase its offer. One analyst said: “Kraft has to raise its offer no matter what to have it accepted by Cadbury shareholders – but the entrance of two possible white knights may allow it to raise its bid without losing too much face.”
Prior to yesterday, when news that Hershey and Ferrero were mulling a bid broke, Kraft boss Irene Rosenfeld had insisted there was no point “bidding against herself”, which was why she stuck with a hostile bid of £9.8bn that values Cadbury’s shares at 717p.
Analysts said the synergies from a deal with Ferrero and Hershey would not be as great as those from a Kraft tie up. Charles Stanley’s Jeremy Batstone-Carr said: “Ferrero doesn’t have a strong reputation for deal making. It has a limited chance of success.”
Hershey would find it almost impossible to afford Cadbury on its own.Because the US firm is majority-owned by a trust, which must control the firm under state law, it would have to fund most of the deal in cash rather than equity. Cadbury shareholders would balk at owning non-voting shares in a US firm.
Hershey has $119m (£71m) in cash and debt of $1.7bn. Its earnings over the past 12 months were just $1bn. Analysts say the firm can only add a few billion to its debt pile without losing its investment grade status. That means it would need to raise close to half of Cadbury’s £10.8bn market valuation in non-voting shares, making a solo bid impossible.