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.

Nastiness in the mix for Kraft’s hostile Cadbury bid?

Rather than talk about sweetening its 789 pence-per-share offer for Cadbury — say, to the 820-850 pence level analysts think is needed — Kraft is urging shareholders to take a long hard look at Cadbury’s revenue growth targets, margin goals and other metrics measuring management’s effectiveness. That’s a none-too-subtle step away from the argument that the merger would create mounds of value.

It makes sense that Kraft CEO Irene Rosenfeld would not want to make Cadbury look like it’s worth more than she wants to pay. If Kraft is going to convince anyone it shouldn’t raise the bid, regardless of whether a rival rides in from Hershey or elsewhere, it has to appear willing to walk away rather than go back to the bank.

Cisco, which recently bought Tandberg, is widely regarded as having one of the most savvy in-house merger teams among big corporate predators. Though its bid for the videoconferencing company was hostile, the prospect for a higher bid was always out there. So when it came, it was easy for everyone to accept. Cisco CEO John Chambers also took care to talk up the videoconferencing business as core to Cisco’s future.

from Commentaries:

Takeover Panel sets Cadbury clock ticking for Kraft

KRAFT-CADBURY/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.