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Stock of the Day
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Kraft (KFT)
Kraft Still has a Sweet Tooth
With mergers and acquisitions, sometimes things start on good terms and other times things can quickly head south. The cut throat business world sparks a lot of determination in companies that really want something specific, whether it is another company or something else. Kraft Foods has had its eye set on Cadbury for a while and now the company has switched its strategy to try and close this deal. Kraft has launched a formal hostile takeover bid for Cadbury two months after the UK confectioner rejected its initial offer. What caused Kraft to switch its acquisition approach with the company? Will this hostile bid actually hurt or harm the company's chances?
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Kraft Foods is definitely not wasting any time. The company just announced back in September that its initial offer of $16.7 billion for Cadbury was rejected. At that time, Cadbury turned its nose up as the bid and made is crystal clear that the offer was inadequate. Chairman Roger Carr complained in a public letter to Kraft's chief executive, Irene Rosenfeld, that the idea of Cadbury being absorbed into Kraft's "low growth, conglomerate business model," was an "unappealing prospect”. Kraft obviously didn't like the quick rejection of its offer, so it decided to approach the situation in a different manner the second time around. Kraft is now offering $16.3 billion dollars in a hostile bid for Cadbury and did not increase the offer before taking the matter to shareholders mainly because Kraft's share price has fallen in the interim. Why didn't Kraft just come back to the table with a regular bid for the company? There are a couple of things that may account for the recent change in plans. One of the motivating factors may have been the possibility of another company acquiring Cadbury. When it was reported that Kraft had made an initial offer, other companies started paying attention and evaluating a possible acquisition. The hostile offer doesn't eliminate this threat unless shareholders approve the offer quickly. If another company launches a competing bid in the meantime, the takeover battle could drag on even further.
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Time was also not on Kraft's side. The company was facing a looming deadline for 5 p.m. today, or it had to walk away from the deal for at least six months. Since Kraft didn't plan on increasing its offer, which Cadbury had already deemed as too low, it went ahead and initiated a hostile bid for the company. With any hostile bid, feathers get ruffled and sometimes the company fights even harder to get the offer rejected. Cadbury has already rejected the second offer and stated that it doesn't come remotely close to the true value of the company. However, the decision doesn't rest with them anymore. It's up to shareholders to decide if the deal is worth pursuing.
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Kraft may have put itself in a bad place if shareholders reject this second offer. The company has definitely burned bridges with Cadbury, so chances of the company accepting another offer are probably slim to none. This is a risk that any company initiating a hostile bid takes and obviously Kraft thought it was worth it. Kraft has 60 days to collect enough shares to seal the deal from the day it publishes its prospectus.
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Other Stuff on Kraft and Cadbury
A Long, Sickening Chocolate War -- When you have an initial bid rejected as derisory it is probably not a good idea to come back with a lower offer expecting a big change of heart from your prey.
Kraft Banking On Lack Of Competition -- No competitor has raised its hand in the intervening period.
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McDonald's Same-Store Sales Rise -- McDonald's Corp.'s (MCD: Charts, News, Offers) global same-store sales rose 3.3% in October.
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Profile |
Click here to view a detailed profile of Kraft.
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