Cash not culture to decide Cadbury fate
Cadbury Chief Executive Todd Stitzer says the company has shared cultural values with Hershey. This may encourage the U.S. confectionery group. But it is will be hard pressed to match, let alone trump, Kraft’s hostile bid. For all the talk, shareholder value will decide Cadbury’s fate.
Stitzer’s comments show he is open to a Hershey offer. But this probably has little if anything to do with culture. By positively encouraging a white knight counter-offer to Kraft’s cash and share bid, Stitzer and his advisers are working on the premise that this is the best way of squeezing a higher price out of Kraft.
Cadbury shares, which had remained stubbornly below 8 pounds following Kraft’s bid, are now trading at 8.07 pounds. This values Cadbury at more than 11 billion pounds, thanks largely to Hershey and Italian chocolatier Ferrero confirming their interest. Compare that with a current value of 7.18 pounds per share for Kraft’s cash-and-shares bid and it’s clear why Stitzer has warmed to Hershey.
The trouble is that despite a report of JPMorgan and Bank of America being willing to lend Hershey some $7 billion to finance a bid, Hershey will be stretching itself to the limit to buy its larger rival. And for a bid to go ahead, Hershey’s management needs to show it would be in the interests of its major shareholder, The Hershey Trust.
For Hershey to successfully take on Kraft, it will need to team up with either Italian family-owned group Ferrero or Nestle. That would lessen the financial impact on Hershey, but would also dilute the very virtues which Stitzer extols.
Nobody is disputing the cultural similarities. Indeed, Hershey already manufactures Cadbury chocolate bars in the U.S. But unless Hershey can come up with a compelling financial argument for taking over the purple-wrapped British chocolate company, culture will remain a sideshow.