A Carnival instead of a wake for Cadbury
It may be fantasy M&A, but little GFI Securities has a suggestion for putting Cadbury and Hershey together without bankrupting the buyer. Compared to the blunderbuss approach from Kraft, it’s elegant and at least provides some food for thought.
The idea is the dual listed company (DLC), a corporate structure that allowed Carnival, the world’s largest cruise line, to take over P&O Princess. Like Cadbury, P&O was a FTSE100 company, and, through the DLC, has been replaced by Carnival in the index.
It’s obvious that Hershey is culturally and philosophically the best partner for Cadbury, assuming it is obliged to find one. But Hershey is too small to pay cash, while a Pennsylvania law requires the Hershey Trust to retain control of the business.
GFI proposes that Hershey tenders for 11 percent of Cadbury shares at a big premium, followed by a merger of operations, with existing Cadbury shareholders owning 55 percent of Cadbury-Hershey. The vexed issue of control might be tackled by special provisions in the DLC, or by differential voting rights between Cadbury-Hershey plc and Cadbury-Hershey Inc.
This is head-banging stuff, even before the little matter of constructing a tax-efficient DLC, something GFI admits would be “highly complex”. In practice, the firm can expect little more than an acknowledgment of its letter to Todd Stitzer, the Cadbury chief executive.
Yet it should not be dismissed out of hand. The argument in this takeover battle so far has all been about what price Kraft needs to pay to win, but few doubt what would happen to Cadbury if it did so. The UK employees are right to be apprehensive.
Kraft cannot afford an all-cash offer, and UK shareholders tend to sell foreign equity issued in takeovers. Besides, Cadbury is the only way sweet-toothed British investors can find exposure to the sector, and the bulls believe it will be eventually worth much more than 820 pence, the price at which many expect Kraft to win. There is a long way to go with this bid, but something like GFI’s proposal might produce a happier ending than death by cheese slices.