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Kraft (KFT)
Kraft Deal Not Sweet Enough for Cadbury
While most Americans were taking some time to relax, Kraft was busy making an offer for Cadbury (CBY: Charts, News, Offers). Investors returned from the long holiday weekend to news of Cadbury declining the bid from Kraft Foods Inc. The British maker of dairy milk chocolate wasted no time rejecting the $16.7 billion acquisition offer from Kraft. Some investors thought the deal was a pretty sweet one, but obviously not sweet enough for Cadbury. Why did Cadbury reject the offer so quickly? Will Kraft continue to pursue the deal? Will the rejection spark more offers from other competitors?
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Kraft was positioning itself to make one of the largest cross-border deals this year. Rumors of the bid have been swirling since July, but analysts were not expecting it to be pitched so soon. One of the possible reasons behind the quick rejection was the price that Kraft offered Cadbury. The $16.7 billion seems impressive at first glance, but given Cadbury's track record of success the offer is pretty low. Cadbury shareholders are also not that keen on 60 percent of the price coming in the form of Kraft's U.S.-listed shares. If Kraft makes another bid, Cadbury shareholders will be expecting more cash and fewer shares. The initial bid by Kraft was likely lower on purpose. The company will probably come back with a more enticing offer. Kraft is definitely not ready to throw in the towel this early in the game, but the job of acquiring Cadbury just got a little harder.
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Another possible reason for the rejection by Cadbury is the fact that this initial bid will attract more suitors. Now that Kraft has expressed interest in the company, other competitors may start a bidding war that will result in more money for Cadbury. Some of the possible suitors now include Hershey (HSY: Charts, News, Offers) and Nestle, which both could gain a lot from acquiring the company. Some analysts don't believe that a bidding war will ensue. Nestle is one of the only companies that is financially stable enough to pursue an acquisition this big. Nestle Chief Executive Paul Bulcke said that the Nestle is open to new opportunities, but the group did not plan for any big acquisitions in 2009 or 2010. This is actually some good news for Kraft. The company may not have to shell out as much money if they don't have competitors trying to top their bids.
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Kraft's bid for U.K. confectionary company Cadbury is just the latest effort by this group of companies to boost their growth. A deal between Kraft and Cadbury would create a global food giant with $50 billion in annual revenues. If the deal does happen, Kraft would be catapulted to the No.1 global confectionary spot. Cadbury is simply asking Kraft to show them the money and lots of it. The CEOS of both companies will also have to get on board or move out the way regarding any deal because currently the two are at odds about the possible deal. Kraft is hoping for a speedy resolution, but the company should prepare for fight if more bidders get introduced in the game.
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More Views on Kraft
Hershey is Not Interested -- Here's why Hershey will likely not make a bid for Cadbury.
Competition Issues With Kraft Bid -- A possible takeover could result in some competition issues according to this lady.
A Sweet Deal for the Economy? -- Does the bid from Kraft mean that investors and corporations are recovering their appetite for large deals?
Video -- Cadbury Resists Possible Kraft Offer
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