Kraft has announced detailed terms of a final offer for Cadbury,
which crucially carry the unanimous endorsement of the Cadbury
Board of Directors, and its influential chairman, Roger Carr.
This transaction values Cadbury’s share capital at
£11.9bn, or 840p/share, consisting of 500p in cash and 0.1874
new Kraft shares per Cadbury share. In addition, Cadbury
shareholders will be entitled to receive a 10p/share special
dividend following the date on which the final offer is declared
unconditional. This total consideration represents 13x EBITDA,
certainly towards the lower end of historic takeover multiples in
the sector, and barely above the valuation attributed to
Kraft’s recently-divested frozen pizza business (12.5x).
Cadbury shareholders wishing to accept this offer must do so by
1:00pm (London time) on 2 February 2010. Details for this procedure
will be found in the final offer documents which should be sent out
in the next couple of days.
This represents an abrupt, and surprising, change of view for
Cadbury and its senior management who have consistently portrayed
Kraft as a “low-growth conglomerate” while making
disparaging comments about its CEO, Irene Rosenfeld. But while
Kraft has been derided by most market commentators, it has played
its hand perfectly, in our view. It effectively bought
Nestle’s cooperation by divesting its frozen pizza business
to the Swiss giant, and took advantage of a lack of competing bids
to submit a low-ball offer.
We believe that this new offer is still too low and abysmally
undervalues such a unique and focussed confectionery company.
Unfortunately, it will in all likelihood succeed given
Cadbury’s recommendation, as well as the fact that 45% of its
shares are controlled by American institutional investors, many of
whom are risk arbitrage hedge funds seeking a quick profit.
In terms of a counterbid, Hershey is still lurking in the
background and has until the 25th of January to clarify its
official position. As we have contended in the past, we find it
unlikely that Hershey will bid given the scale disadvantage, lack
of synergies and financial resources, and considerable legal
complexities. In the unlikely event the company bids, we do not
believe it could top 850p/share.
Cadbury shares are currently trading at 835p, implying the
market believes this deal will almost certainly be consummated.
Therefore, private shareholders now need only decide if the extra
15p of consideration is worth the inconvenience and risk of holding
US-listed Kraft shares.
- Ends-
For further information please contact Phil Spencer on 0845 213
3356