Bond investors still relatively sweet on Kraft
By Agnes Crane
If Kraft’s stock price is any indication, shareholders are ambivalent about the purchase of Britain’s cherished candy maker, Cadbury. Yet debt investors handed over $9.5 billion to the cheese-and-crackers conglomerate on one of the gummiest days in the markets for ages.
Chief executive Irene Rosenfeld shouldn’t take this confidence, however, as a robust validation of her acquisition strategy.
Shares of the Cheez Whiz maker have congealed at around $28 per share — down from this year’s high of $30.10 but modestly better than the $27 or so during Kraft’s dogged courtship. That’s not surprising given the public lashing Warren Buffett, the company’s top shareholder, gave Kraft over the high price paid for Cadbury.
But bond investors may be in a different boat, as evidenced by the alacrity with which they snapped up Kraft’s bonds on a day when global markets sank. Though Kraft had to pay a mite extra to get the super-sized deal done, the fundraising will go a long way to paying off the roughly $11.2 billion that banks loaned the company to bridge the deal.
This demand, however, had more to do with particularities in the bond market than a ringing endorsement of a Velveeta cheese and Dairy Milk chocolate mash-up. First, Kraft hadn’t tapped the market in more than a year, meaning that investors hankering for household names like Kraft were hungry.
Second, investors around the world are looking for stable places to put their money amid growing concerns that more recent optimism in financial markets may have been misplaced. There are few sectors more defensive should times get tougher, or inflation spike, than food.
Finally, the travails of sovereign nations like Greece, Spain and Portugal, coupled with soaring budget deficits in much of the developed world, are encouraging some investors to put their money with quality companies rather than troubled countries. Overseas investors, particularly from Asia, were keen to get a piece of the deal, bankers said.
This demand, of course, could change if emerging worries about the global economy deepen. Then, funds could be re-routed back to the traditional safe harbors like U.S. Treasuries. But Kraft, with its Cadbury deal financed, won’t have to worry about that.