DealZone

DealZone Daily

American International Group was closing in on a deal to sell its foreign life insurance unit to MetLife Inc for about $15.5 billion in cash and stock, sources familiar with the matter say. MetLife is expected to pay AIG about $6.8 billion in cash and about $8.7 billion in equity, which includes convertible preferred, common shares and common equivalent securities, for the unit, American Life Insurance Co (Alico). Read the Reuters story here.   Indian conglomerate Essar Group plans to raise about $2.5 billion to $3 billion by listing its energy and power businesses on the London bourse in late April, a person familiar with the matter says. Read the Reuters story here.   In other M&A and corporate finance news on Monday:   Kraft Foods is being investigated by UK regulators on whether the company misled employees and investors in its pursuit of Cadbury, the Wall Street Journal said, citing people familiar with the matter.   Top Prudential shareholders are threatening to revolt because they were not given a role subunderwriting the insurer’s $20 billion rights issue, reports the Telegraph. Shareholders are “furious” they have not been offered a role and that the job and lucrative fees that go with it have been given to a group of 30 banks instead.

The afternoon deal: Krafting Cadbury

CADBURY/KRAFTMunching on a Cadbury Dairy Milk bar, Kraft CEO Irene Rosenfeld says in an interview she expects to complete the takeover of Cadbury within weeks. As Rosenfeld warmly welcomed Cadbury employees into the Kraft fold,  Twitter was buzzing with bad chocolate and cheese headlines.

Get the full story here, along with statistics of the combined Kraft/Cadbury company and a timeline of the deal.

Kraft has promised $675 million in annual cost savings from the deal, which will mean cuts to Cadbury’s global workforce of more than 45,000 during the integration process, analysts said.

from Funds Hub:

Trust the Cadbury trustee to get a deal

Warren Buffet may think Kraft isn't doing a good deal by taking over Cadbury. With Kraft shares falling, Cadbury's shareholders may not think the deal too sweet either and some disgruntled British consumers may be appalled that a much loved brand will be sold to a non-British group -- and one that sells  chocolate symbolised by a lilac cow at that.

RTR292BEBut one party is sure to get a good deal: the Cadbury pension fund trustees.

While Cadbury fans are digesting the takeover news, the trustees have lost no time in seeking a dialogue with Kraft to make sure they do get a good deal for the workers they represent. Call it fiduciary duty if you like but be sure pension trustees, used to a sponsor that "stood behind the pension fund for more than a hundred years", will give Kraft a hard and cold look to assess its credentials as a sponsor -- what the pension industry calls in vaguely biblical terms "the covenant". 

In theory there is no need for a fight -- Kraft was swift to assure it would honour "the existing contractual employment rights, including pension rights". But did the multi-national really know what this pledge would cost, at least in pension terms?

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.

Cadbury cracks

The recommended £11.9bn (US$19.4bn) offer by Kraft for Cadbury appears satisfactory to both parties. Kraft gets its prize, ultimately paying 13% more than it initially wanted. Cadbury shareholders receive 48% more than the value of their shares prior to Kraft’s approach.

Cadbury’s board can be pleased they managed to extract so much value when alternative bids seemed unlikely. Kraft’s management, led by Irene Rosenfeld, has remained disciplined helped by the side deal: selling its pizza business to Nestle for US$3.7bn.

Nevertheless, increasing the cash element of its offer to 500p a share, or 60% of the total bid, could cause Kraft some financial headaches, pushing its debt levels to over four times EBITDA. Rosenfeld denies that it will affect the company’s credit rating. If it did, the deal’s rationale would be dented.

Kraft’s sugar high

Kraft was always expected to raise its bid for Cadbury, even with no real rival to its initial overture and grumblings from top shareholder Warren Buffett about Kraft possibly overpaying with its stock. The only question was how much. But if it did overpay, it did so with credit. Just in case shareholders were thinking of making a stink, CEO Irene Rosenfeld ratcheted up the cash component to a level that negates the need for shareholder approval.

Dealmakers said the agreement was struck after all-night negotiations in London. It values Cadbury at 840 pence per share. Shareholders will also get a special dividend of 10p per share, bringing the total to 850p per share. That far exceeds scaled-back expectations and was a big jump from the sub-800p levels that had so soured earlier negotiations.

With growing expectations that Hershey would muster a bid around these levels, and all of those high-brow British M&A deadlines clicking into place, getting a friendly agreement had gained urgency going into the weekend. While pundits’ palates (beyond those of fondue-chomping Europhiles, if you keep an ear on CNBC) may rebel at the swirling of chocolate and cheese, Rosenfeld has for at least a day gone from looking outflanked by both her own shareholders and grumpy Cadbury executives to a box of chocolate roses.

DealZone Daily

Tuesday’s highlights:

* U.S.-based Kraft Foods Inc and Britain’s Cadbury Plc are close to sealing a friendly deal to create the world’s largest confectionery group for up to 11.7 billion pounds ($19 billion), sources familiar with the matter say.

* Japan Airlines Corp’s board of directors decided on Tuesday to file for bankruptcy protection, Kyodo news agency says.  

* Industrial conglomerate Tyco International will acquire Broadview Security for $1.9 billion in a deal that brings together two large providers of residential and commercial security in North America, the two companies say.

DealZone Daily

Monday’s highlights:

London-based oil explorer Tullow Oil (TLW.L) exercises a right to buy Ugandan oil fields which its partner in the fields, Heritage Oil (HOIL.L), previously agreed to sell to Italy’s Eni (ENI.MI) for $1.5 billion.

Some of Cadbury’s (CBRY.L) biggest shareholders, led by Legal & General, continued to reject Kraft Foods’ 10.5 billion pound ($17.2 billion) bid and will look for an increased offer.

Brazil’s Camargo Correa Group reiterates its interest in cement maker Cimpor and says it is pondering its options after the Portuguese stock market regulator turned down its merger proposal.

Is Cadbury too rich for Hershey?

While Cadbury shares saw some life on hopes for a rival bid from Hershey — boosted by reporting from the FT that a rival offer was further along than much of the market had assumed — naysaying analysts and pundits have been quick to point out that the financials of a Hershey bid are hard to stomach.

Hershey is only half the size of Cadbury, and a big share issue would dilute the stake of the controlling Hershey Trust, which has been every bit as crucial to defining the company as the kiss. The FT report says Hershey is working on a private equity element with none other than Byron Trott, Warren Buffett’s banker of choice. The idea that Buffett, who is Kraft’s biggest shareholder, could play both sides of a bidding war is, if not new, certainly intriguing, particularly given his apparent distaste for Kraft selling its own shares to keep its bid attractive.

And while Cadbury has repeatedly denied it is looking for a white knight, a deal that would leave its management in place, perhaps in exchange for keeping the Hershey Trust intact, could be attractive enough to consider breaking off a piece of Cadbury to give to a private equity investor to chew on … its gum business, for example.