The afternoon deal: Krafting Cadbury
Munching 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.
“We just want a few safeguards. What are they going to do? Kraft has not said anything up until now. The unions have said it is a predatory company,” the BBC quotes a Cadbury employee.
More reaction to the merger:
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.
But 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?
Almost certainly no, because truth to tell the pension trustees themselves do not know. The fund is waiting for the results of its triennial valuation, which should give an accurate picture of the fund's financial shape. Independent consultant John Ralfe told me he thought trustees could present Kraft with a cash injection bill of £200 million or more.
Whether the assessment of an independent consultant not involved with the scheme in question proves right or not, it is fair to assume this kind of money would still be a small price to pay for the successful completion of a £11 billion deal.
If it turns out to be more, Kraft will still be careful not to antagonise the pension trustees because they may not be able to scupper a deal recommended by the board, but a prolonged struggle could attract the attention of The Pensions Regulator.
Is Buffett being Krafty?
Warren Buffett may have thrown a monkey wrench into Kraft’s bid for Cadbury — not with his ‘no’ vote on Kraft’s plan to issue 370 million shares to help buy the British chocolate company, but with his scathing comments on Kraft’s board for a deal he has long regarded with skepticism. Buffett previously said Kraft’s stock was an “expensive currency” for funding the deal, a position he repeated on Tuesday.
Kraft’s proposed share issue would give it a “blank check,” allowing it to change its offer for Cadbury, Buffett’s insurance and investment company Berkshire Hathaway said in a statement. “And we worry very much that, indeed, there will be an additional change from the revision announced this morning.”
The statement came hard on the heels of a slight sweetening by Kraft of its $16.4 billion offer for Cadbury. The overall figure is the same, but the cash portion is a bit bigger. Perhaps more telling, it also followed a statement from Nestle shooting down speculation that the world’s biggest food group had any interest in getting involved in the Cadbury deal.
With Cadbury’s hopes for a new bidder now effectively dashed, and Kraft having tweaked its offer, any defections from the Kraft side will further crimp expectations that the bid might be raised again. Isn’t this precisely the message Kraft wants Cadbury to get?
While we’re on the subject of Kraftiness, we note the sale of Kraft’s frozen pizza business for $3.7 billion to Nestle — which is mean to help fund the increased cash portion of the Kraft bid — could well have helped Nestle decide to steer investors away from thinking it would challenge Kraft’s Cadbury bid.
Cadbury is being stupid. Its stock goes to 690p (where it traded before KFT came along) if KFT walks and KFT knows this. It doesn’t need to bid against itself. Read a wild story about a young worker Wall Street at http://storyburn.com
Kraft’s anti-climax?
North American food giant Kraft is due to post its offer documents to Cadbury shareholders by Dec. 7, but this latest milestone in the 10 billion pound takeover saga may turn out to be more damp squib than giant Toblerone.
Kraft could indeed post the documents ahead of time as the Times reported this week. With no significant changes to the structure or value of the offer anticipated, the event is unlikely to captivate or move the markets, however.
Keeping the terms exactly the same would be typical behaviour for Kraft, as we said last month here. The company formalised its indicative offer in the hope that no rival bidders would emerge to pressure it to up its bid. Despite Wispas — sorry, whispers — about Hershey, Nestle, and Ferrero, no rival has come forward yet.
For our latest take on Kraft’s long-game pursuit of Cadbury, click here
DealZone Daily
Shares in banks, builders and companies part-owned in the Middle East fall around the world, and investors seek safety in government bonds on worries about Dubai’s ability to pay its debts.
Meanwhile, global miner BHP Billiton (BHP.AX) dismisses talk that rival Rio Tinto (RIO.AX) is baulking at a proposed $116 billion joint venture in iron ore, insisting the two are close to a binding agreement.
For the latest deals news from Reuters, click here.
And here’s the top stories from the newspapers (some external links may require subscription):
The charitable trust that’s the major shareholder in Hershey has sought the approval of the Pennsylvania attorney general for a possible $17 billion bid for Cadbury, the British confectioner being beseiged by US foods group Kraft, the WSJ writes. Hershey, which is weighing a solo $17 billion bid, as well as a possible joint bid with Italy’s Ferrero, needs the blessing of attorney general Tom Corbett before it can push ahead with plans to consummate a deal.
United Utilities has put its last non-core businesses on the block, the Times says. The sale of its last remaining non-regulated businesses in the UK, Australia and the Middles East, including outsourcing contracts with Welsh Water and British Gas Trading, could raise some 270 million pounds.
Sweet nothings for Cadbury
So far, Cadbury’s hope that Italy’s Ferrero and U.S.-based Hershey will make a counter-bid for the chocolate company look like a pipedream. Cadbury’s stock has ticked up but is still pretty much where it has been since Kraft’s hostile $16.8 offer hit the market. Nobody appears to be buying the idea that a white-chocolate knight will come up with a bid to seriously rival Kraft’s.
The chance of a joint Ferrero-Hershey bid may be slim. Questions about funding commitments and investment restrictions set on Hershey by its charitable trust ownership structure make any deal involving the maker of chocolate kisses a tough sell.
And market sources say that if they were successful, a Ferrero-Hershey tie-up would likely lead to a breakup of Cadbury along geographic lines.
Irene prepares to tough it out
It looks like Kraft CEO Irene Rosenfeld is getting ready to play hardball with her reluctant target, British chocolate maker Cadbury.
Cadbury investor Mario Gabelli will be disappointed in the short term – he wanted a small kiss from Irene after all - but a formal offer from the North American food group sets in motion an 88-day process under UK takeover rules.
That should give Kraft plenty of time to sweeten its offer to something starting with an eight – the 800p per share bar regarded by many as the minimum price needed to tempt Cadbury to the negotiating table.
Kraft is expected to post earnings of 48 cents a share for the third-quarter, up from 44 cents a year earlier, according to analysts’ estimates, and good results are expected to strengthen its hand in the ensuing battle with Cadbury.
It’s time for those high-profile bankers working for Cadbury to start sharpening the defence. It’s backed by the trio that ran last year’s demerger of its U.S. softs drinks business, as I wrote earlier here.
from Commentaries:
Takeover Panel sets Cadbury clock ticking for Kraft
So Cadbury has succeeded in convincing the UK's Takeover Panel -- the City of London body which polices M&A -- to slap a "put up or shut up" order on Kraft.
Kraft now has until Nov. 9 to decide whether to make a formal offer for the British confectionery group. If it decides to walk away, it is not allowed back for six months.
Cadbury shares are still trading above the price of Kraft's informal stock and cash offer. At just over 8 pounds per share, the current price is some 10 percent above the indicative offer, which is now worth just 7.20 pounds. But shareholders in Cadbury -- which is a household favourite in the UK -- aren't being that ambitious in their expectations for an improved offer. The shares are trading at nowhere near the multiples which were initially bandied about after Kraft's approach became public.
And despite noises about Kraft finding it difficult to raise the money it needs for the 11 billion pound bid -- of which some 4.1 billion pounds would be in cash -- bankers seem to think there won't be any problem getting lenders to make the necessary loans.
The real question is how far Kraft shareholders are willing to let CEO Irene Rosenfeld stretch to get her hands on Cadbury's famous chocolate and chewing gum brands. Kraft stock fell another 1 percent following the Takeover Panel ruling, having dropped around $2 from above $19 to $17.6 since it went public with its approach to Cadbury.
Cadbury, which has rejected the approach, will be hoping that based on the performance of Kraft shares, Rosenfeld will be kept on a fairly tight leash.
