It seems that Kraft Foods (KFT) is about to go after Cadbury plc (CBY) in the U.K. harder than it already has. Many believe Kraft is about to make a high bid even higher than what it has already bid. There are a couple of key issues here to consider, particularly as this deal could launch a wave of size-up and me-too mergers among global food and candy players. The first is the notion that the deal on the table is already generous and has already been called at full-value. The second notion is that the host of competing companies like Hershey (HSY) and its peers and rivals are still considered to be close to deciding if they want to make a play for Cadbury.
Cadbury shareholders have to tender their stock by tomorrow (January 5) at 1:00 PM London time under the existing terms of the December buyout offer. Kraft can raise its bid until January 19 as the deadline set by the regulatory bodies in the United Kingdom. Cadbury shares locally in the U.K. are trading at a premium of close to 9% above Kraft’s current offer. Cadbury has fought this deal, probably just for a higher price. Ferrero is still said to be interested in Cadbury, and the same is true for Hershey. The bid sits at 736 pence, yet the market share price is above 790 pence in London.
Issues like this would seem to be isolated, but they are far from it. With as many food companies that could do this deal, this could create other merger activity out there in food-land (and candy-land). ConAgra Foods, Inc. (CAG) would suddenly look tiny when compared to Kraft as ConAgra’s market cap is about $10.2 billion versus about $40 billion for Kraft (KFT). Unilever NV (UN) and Nestle might be interested in other deals out there. General Mills (GIS) would risk being small despite a $23 billion market cap. HJ Heinz (HNZ) would suddenly be a small fish despite a $13.5 billion market cap, and farther down the chain is Hershey with its $8.15 billion market cap.
The notion that Kraft shares have not performed well also makes this merger different. Usually acquirers see their shares punished harder for a deal this large. And Kraft has been dead money and has yet to make any significant money for its investors in this last decade. Analysts have a much higher consensus price target listed as $31.90 according to Thomson Reuters data.
A few billion just doesn’t seem worth what is used to be. Whether a higher price comes for Cadbury or not, it seems that some of the smaller players might become more and more viable and attractive as buyout candidates in 2010.
