How much sweeter will Kraft’s bid for Cadbury get? Chief Executive Todd Stitzer seemed to be telling investors — according to banker’s note we got hold of — that a 20 percent higher bid from Kraft, or about 12.2 billion pounds ($19.93 billion), would be a fair price. Investors don’t seem to have bought into his enthusiasm, having not bid the stock to anywhere near such a premium.
“On price, Todd seemed to admit that a 15x EBITDA multiple would be a fair price,” the note by Bank of America/Merrill Lynch sales specialist Simon Archer said. Analysts say a multiple at that level puts the price for Cadbury at around 900 pence per share.
Archer has since issued a clarification saying Stitzer’s comments “were only in the context of comparable transactions being in the mid-teens – he was not implying a fair value for the business”.
Kraft initially bid 745 pence per share, or 10.2 billion pounds. After the recent fall in Kraft shares, the cash-and-stock offer is now worth around 718 pence per share. Cadbury shares were steady at 793 pence on Wednesday.
Stitzer also apparently told investors he does not expect Kraft to walk away from the deal and talked about the strategic and revenue positives from a tie-up. The only question he must have is just how high Kraft is willing to go. Twenty percent, even in the context of other deals in the industry, could be seen a starting point for a round of hearty haggling.