DealZone

Hershey’s day in the sun

HERSHEYWith the smell of Cadbury Cream Eggs and Kraft cheese slices thick in the air, Nestle could well be getting hungry for some M&A. Will the Kraft-Cadbury deal soften the Hershey Trust enough for a Nestle merger?

Nestle has plenty of firepower with $28 billion from the sale of its remaining stake in eyecare group Alcon and Hershey might be seen as no more than a large bolt-on. In addition, Hershey is one deal Nestle could do without big anti-trust issues.

And as David Jones reports, from a Hershey perspective, some heat may be softening the the Hershey Trust’s aversion to a deal.

The fact that Hershey had been actively trying to fund a bid for Cadbury, even if it ultimately failed, has raised speculation about its future, as has the fact that 85 percent of its sales come from the U.S. market, where Kraft is likely to attack it with Cadbury products.

Hershey, as a pure confectionery player, is also more exposed to commodity costs like cocoa and sugar than wider ranging groups.

Carefully Krafted

NESTLE/(Acquisitions Monthly) Nestle’s neat moves over the New Year put it in pole position to help carve up Cadbury. The Swiss company’s decision to exercise its US$28.1bn option to sell its remaining Alcon shares to Novartis gives it the firepower to control the fate of the British confectioner.

Nestle’s strong balance sheet, enhanced further by the Alcon agreement, has made it the one obvious alternative bidder to Kraft for Cadbury. The latter is now worth just US$17bn after today’s 3% fall to 778.5p. However, Nestle has done a superb job at putting the market off the scent.

Rationally, the group’s position as the second largest UK chocolate producer should rule it out from making a bid. That is still the case. As Nestle stated this morning, “it does not intend to make, or participate in, a formal offer for Cadbury”.

DealZone Daily

Kraft Foods Inc sweetened its offer for British confectioner Cadbury, lifting the cash component of its $10 billion hostile bid by 60 pence a share. While a sweetened offer was widely expected, less anticipated was a deal by the U.S. food giant to sell its North American Pizza unit to Swiss rival Nestle for $3.7 billion. Nestle has since ruled itself out of the race for Cadbury, ending speculation about one potential rival bidder.

Nestle had fanned the flames of speculation with a deal to sell its majority stake in eye care firm Alcon to minority partner Novartis, but it’s now clear the money is not destined for Cadbury shareholders.

French oil company Total signed a $2.25 billion deal to take a 25 percent stake in Chesapeake Energy’s Barnett Shale gas fields in north Texas, following similar investments by U.S. and European rivals in North American shale gas.

The afternoon deal

UNPLUGGED/The Novartis deal to buy Alcon from Nestle wasn’t a surprise, but $39 billion does grab your attention. Add in minority shareholders potentially getting a raw deal and wrap it all up with the question of what Nestle does with the proceeds and it makes the top story of the day. A Nestle share buyback is in the works but is the company eyeing Cadbury? Questions abound.

The Reuters wrap up of the deal is here. A WSJ blog makes the case that Nestle now has the cash and incentive for a Cadbury bid, but a Bloomberg story pours cold water on the idea.

“Publicly Nestlé has said there are no big deals on the horizon but that it might do bolt-on acquisitions. So they wouldn’t be interested in the whole of Cadbury, but it is plausible that they could do a consortium bid – with Hershey taking the chocolate business and Nestlé taking the chewing gum and candy,” Warren Ackerman, an analyst at Evolution Securities, tells The Guardian.

Alcon is eye candy for Nestle

Swiss drugmaker Novartis is, as expected, exercising an option to buy a 52 percent stake in world-leading eye care firm Alcon from Nestle. It is paying $28.1 billion for Nestle’s stake, bringing its holding to 77 percent, and aims to buy out the remaining 23 percent of the company held by minority shareholders for $11.2 billion. What’s raising eyebrows is the offer of 2.80 Novartis shares for each remaining Alcon share, which amounts to just $153 per share compared with the $180 agreed with Nestle.

Novartis already owns CIBA Vision, the contact lens business, and is ogling an enlarged eye care business with pro-forma 2008 net sales of $8.5 billion. Analysts say it will ultimately need to offer minority shareholders more to get them on board.

What might be more eye-catching in this deal is what it could mean for another one. All cashed up, might Nestle – better known for KitKats than contact lenses – wade into the Cadbury deal, giving suitor Kraft’s bid some serious competition?

Price per eyeball

jackie-chan.jpgUntil today, Portfolio.com’s Felix Salmon had no idea that there was a mega-billion dollar eye care company called Alcon — but when he pulls out his calculator he comes up with some interesting numbers:

“On a valuation level, let’s say that the population of the world is 6.6 billion, and let’s exclude the ‘bottom billion’ for the time being as people who are never going to avail themselves of Alcon’s products. That leaves 5.5 billion people, with 11 billion eyeballs between them. Which would mean that Alcon is valued at over $4 per global eyeball. Nice.”

For the record, Reuters reports that Novartis is buying Nestle’s 77 percent stake in Alcon for $39 billion — $11 billion up front, and $28 billion between January 2010 and July 2011 — which would imply a $50.64 billion total valuation, rather than the $45 billion figure Salmon uses.