Cadbury’s share price says it’s stuck with Kraft

September 22, 2009

Here’s a curiosity. Cadbury shares have not moved by more than 10p away from 790 pence since the day after Kraft popped the question with its 10 billion pound cash and shares “proposal.” 

The falling Kraft share price cut the value from 745p to just under 730p, but the Cadbury price has stuck like gum to a shoe. After the spike on the September 7 approach, trading volumes are almost back down to pre-bid levels. The usual suspects among the arbs don’t seem interested. Could this be the bid that died of boredom?

Todd Stitzer, the American lawyer who runs Cadbury, may have had this in mind when he decided to talk to the Wall Street Journal, having earlier told a long-arranged conference that he couldn’t possibly comment. There are gains from mixing Dairy Milk chocolate with Philadelphia cheese, he admitted, and his remarks were dutifully interpreted as softening his opposition to a deal.

For all the wistful words about Cadbury’s caring legacy, this is about price, and it would seem that Mr Market has a pretty fair idea of what that should be. The only credible counterbid requires a tie-up between Hershey (for the chocolate) and one of a very few possible buyers who think it worth getting into the gum business.

Hopes of something above 9 pounds are receding; provided the mix of shares and cash is right, a little more than 8 pounds may be enough to get Stitzer and Co describing Kraft as a global powerhouse rather than a sprawling conglomerate.

Cadbury’s reported appeal to the Takeover Panel for a put-up-or-shut-up ruling reflects this weakening bargaining position. It’s rather early in the process to ask for such a ruling, and the Panel might well reject a request, or impose a faraway (and irrelevant) deadline.

Kraft could plausibly argue that it needs more time to convince British investors of the charms of its shares, and that to force it to make a hasty final decision would not be in the best interests of Cadbury shareholders. In any case, at least the Krafters now have a pretty fair idea of what they have to pay to win.

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