Cadbury Plc, the confectioner that rejected Kraft Foods Inc’s bid on Monday, may attract suitors ranging from Nestle SA to Hershey Co and sell for as much as $21 billion, according to analysts.
The UK-based maker of Dairy Milk chocolate and Trident chewing gum spurned Kraft’s $16.7 billion bid as “fundamentally inadequate” and its shares surged past the offer price, suggesting investors are expecting a sweetened proposal from the Northfield, Illinois-based company or a rival offer.
Nestle, the only food company larger than Kraft, may be tempted to thwart its smaller rival’s ambitions to bulk up, and team with Hershey to break up Cadbury, according to Evolution Securities, Panmure Gordon and Kepler Capital Markets. Other potential predators include Kellogg Inc. and PepsiCo Inc Kraft said it would keep trying to persuade Cadbury to start talks.
“We’re moving towards the end game of consolidation in confectionery,” said Simon Marshall-Lockyer, an analyst at Jefferies International in London, who has covered Nestle since at least 2001. “The stakes are very high.”
Cadbury declined to comment on whether it had received interest from any other companies.
The biggest transaction in the candy business occurred last year, when Mars Inc, the privately held maker of M&Ms, bought Wm Wrigley Jr Co to surpass Cadbury as the world’s largest confectioner. Cadbury and Kraft’s combined sales in 2008 were $51 billion, about half Nestle’s revenue over the same period.Combined, Cadbury and Kraft would match Mars’s 15 per cent share of the global candy market, according to figures from Euromonitor, a London-based research firm. Nestle trails with a 7.6 per cent share of the market.
“This deal, if it were to go ahead, is bad news for Nestle,” said Andy Smith, an analyst at Icap Plc in London. “They’ve got the firepower to counter if they want.” Kraft’s announcement that it had approached Cadbury came at 7 am in London yesterday, when US markets were closed for Labor Day. Cadbury shares soared 38 per cent on Monday, while Kraft declined 1.6 per cent in German trading.
Nestle Chief Executive Officer Paul Bulcke yesterday said his company had ruled out major acquisitions in 2009 and 2010, though he declined to comment on Cadbury specifically. Nestle spokesman Robin Tickle declined to comment further.
Press officers for Hershey, Kellogg, PepsiCo and Mars also declined to comment. Hershey is the largest publicly traded US candy maker, while Kellogg is the biggest maker of breakfast cereal in the US.
“If there is strategic interest from other players, then this will smoke them out,” Martin Deboo, an analyst at Investec in London, said of Kraft’s approach.
Valuations Cadbury’s biggest shareholder, Legal & General Investment Management, joined with management in rejecting Kraft, saying it noted “the valuations of other recent food transactions.”
Those recent deals include Mars’ $22.6 billion bid for Wrigley. Andrew Wood, an analyst at Sanford C. Bernstein in New York, valued that transaction at 19.5 times earnings before interest, tax, depreciation and amortization. Kraft’s current bid values Cadbury at much less, or about 12 times ebitda, according to Bloomberg estimates. Kraft would probably have to pay 14.7 times Ebitda, or $22.7 billion, to be successful.
