Hershey’s day in the sun
With 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.
With deals flowing again, Kraft is expected to have no trouble drawing demand for a massive bond sale, so we just might see the maker of Kit Kat and Coffee Crisp getting up and cozy with the maker of Hershey’s Kisses.
DealZone Daily
A negligible 1.5 percent of Cadbury (CBRY.L) shareholders have tendered their stock to Kraft (KFT.N) at the first deadline — as expected, most are waiting for a higher offer from the U.S. food group. Billionaire Warren Buffett gave Kraft an embarrassing slap on the wrist on Tuesday, warning it not to overpay for the British confectioner. His words caused a steep drop in Cadbury shares, as markets discount a smaller chance of the bid succeeding. But then again, Kraft raised the cash component of its offer, while possible rival bidder Nestle (NESN.VX) bowed out of the race.
Singapore’s third-largest lender United Overseas Bank (UOBH.SI) will sell ifs Singapore life unit to Britain’s Prudential (PRU.L) for around $310 million.
And in other media:
An unnamed Russian group is close to buying control of one of Ukraine’s largest steel groups, Industrial Union of Donbass, the Financial Times says.
The afternoon deal
For an M&A story you can’t get much better than today’s Kraft/Cadbury/Nestle/Buffett mash-up. Kraft said it would give detailed terms of its alternative cash offer by January 19, stay tuned. Here is a breakdown of the deal:
- Reuters wrap up: Buffett threatens Kraft’s Cadbury bid
- Factbox: How the new offer works
- Scenarios: Kraft sweetens Cadbury bid
- Timeline: Kraft bid timetable ticks away for Cadbury
- Berkshire Hathaway news release on Kraft’s bid (Berkshire Hathaway)
What is Buffett up to?
- Warren Buffett’s M&A 101 Lesson for Kraft (WSJ)
- Warren Buffett’s public attack on Kraft is out of character (Guardian)
- What Buffett’s Vote Means for Kraft’s Cadbury Bid (WSJ)
- Breaking down the press release (The Rational Walk)
Kraft:
Nestle:
Carefully Krafted
(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”.
Chief executive Paul Bulcke has consistently said that he does not want to undertake a major acquisition, preferring to focus on bolt-on deals. The US$3.7bn purchase of Kraft’s frozen pizza business falls into the latter category.
However, Nestle’s market value is more than treble that of nearest peers Kraft and Unilever. Cadbury is worth just a tenth of Nestle, making it pretty digestible. Cadbury’s non-chocolate parts, such as Hall’s cough sweets, would be even more consumable.
If Kraft can gain control of Cadbury, bolstered by the cash from the pizza divestment and secure funding from its bank syndicate, then Nestle can pick up prize assets that Kraft might have to sell to reduce debt.
Nestle’s masterstroke was allowing long standing adviser Credit Suisse to join Kraft’s syndicate. The market thought that ruled out Nestle from any designs on Cadbury. But if Kraft wins the bid, then Nestle can start selecting its choice Cadbury goodies.
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
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.
For more on these and other deal-related stories from Reuters, click here.
In other media:
Sportech, the football pools operator, has agreed a new 91 million pound credit facility to help it pursue a “significant acquisition”, raising speculation it could bid for state-owned bookmaker the Tote, the FT and Daily Telegraph report.
British private equity firm Lyceum Capital has taken a majority stake in energy advisory business McKinnon and Clarke, valuing the Scottish company at 22 million pounds, the FT reports.
The afternoon deal
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.
Here are other takes on this “eye-catching” deal:
Novartis-Alcon: Not Really a Consumer-Health Deal
Does Alcon Deal Stack Up For Novartis?
and not to be outdone by the hard news: *sigh* I will miss free Nestle ice cream at Alcon company picnics
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?
Nestle said the deal would allow it to launch a new $9.64 billion share buyback program. While Nestle has indicated it is only in the M&A market for smaller deals, that kind of money could well wind up burning a big hole in its pocket, one that is a couple of billion bigger than the $16.2 billion offer Kraft already has on the table.
DealZone Daily
The New Year starts with a massive — though widely expected — deal as Novartis (NOVN.VX) says it plans to buy the rest of eye-care group Alcon (ALC.N) for almost $40 billion. The seller is Swiss food group Nestle, which as it happens is sometimes mooted as a rival for Kraft’s (KFT.N) hostile 10 billion pound bid for Cadbury (CBRY.L). The British chocolate maker’s shares nudge up 4 pence to above 800 pence after media reports that Kraft is set to raise its offer. But markets were expecting a higher bid anyway.
And shares in Japan Airlines Corp (JALSF.PK) jump 31 percent as the country’s government looks to secure funds to prevent the carrier from running out of cash.
For more on these and other deal-related stories from Reuters, click here.
In other media:
National Australia Bank (NAB.AX) is gearing up for a takeover of nationalised British lender Northern Rock (NRKx.L) and has held a “beauty parade” of potential advisers on the deal, British newspaper The Observer reports.
The Samsung Group’s life insurance unit may sell a stake in Samsung Card Co Ltd to retailer Shinsegae Co Ltd to help the parent group unwind a cross-ownership structure, the Korea Economic Daily says.
Is the worst over?
Merger mania is back, at least that’s what the numbers seem to show.
A staggering total of about $60 billion worth of corporate deals have been announced or rumoured in global markets since Saturday alone. The takeover feast is impressive, spread as it is across diverse sectors such as foods, semiconductors, financials and telecoms.
Kraft Foods’s blockbuster $16.7 billion offer to buy Cadbury has suddenly turned the spotlight back to dealmaking and swept away markets’ lingering concerns of patchy economic growth. The rising deal volume is a welcome relief for investment banks, who’ve gone through a torrid year after Lehman’s bankruptcy last September brought M&A to a halt. The dealmaking will help them partly fill their coffers with much-needed advisory fees and a kick up in the league tables.
No doubt with many equity markets rallying to 2009 highs, and lured by prospects of improved valuations, many buyers are chasing deals while prices are seen as cheap. That could have been the thinking behind Abu Dhabi’s move to offer $1.8 billion to buy loss-making Nasdaq-listed, Singapore-based Chartered Semiconductor in a chip sector emerging from its worst downturn.
Many companies are simply being opportunistic, but with the economic tsunami having left so many companies floundering there the opportunity to reel in cost savings and restructuring bargains through mergers could outweigh any lingering caution about whether the recovery is for real or not.
