from Commentaries:

Cadbury’s Kraft sugar rush overdone

KRAFT-CADBURY/Kraft's offer for Cadbury got off to a sticky start on Tuesday when the U.S. food group's stock fell 6 percent, taking some of the buzz out of Cadbury's bid-fuelled share price.

Kraft's initial offer has raised expectations of a higher bid, but while it is likely to have to pay more to win, the take-out prices now being touted are stretching the value of the British confectionery group further than a Curly Wurly.

The multiple paid by Mars to Wrigley -- some 17.5 times EBITDA -- has encouraged analysts to look for a valuation of 15-16 times forecast 2009 EBITDA, implying a price of 10 pounds or more, against Kraft's 7.16 pound per share offer after the fall in the Kraft price. The Cadbury share price also gave up some of its gains, but is still well above the value of the bid.

But comparisons with the Wrigley takeover and recent deals -- the average multiple for big food deals has been 14 times EBITDA over the last 10 years -- do not adequately factor in the higher cost of capital since the Mars deal. As a private company, Mars could also pursue a fully-priced bid without rattling its shareholders.

Cadbury's shareholder base is now heavily skewed towards the United States and there will certainly have been changes since the offer was announced, with arbs leaping in at the prospect of a rare bidding war. Cadbury may be a British institution, but British institutional investors are conspicuous by their absence from the share register. This raises the chance of the company's fate being decided by these newly-arrived shareholders.

Will Cadbury prove too rich for Kraft?

August may be considered the month of silly news when bankers virtually pack up and retreat to their summer hideaways with their blackberries. But not so for those at Lazard, Citigroup, and Deutsche Bank, left behind to advise Kraft, the world’s second-largest food manufacturer after Nestle, on its bid for Cadbury. Kraft is offering £10.2 billion ($16.75 billion) in cash and stock for the sweets group.

Cadbury’s board, led by its relatively new chairman, Roger Carr and advised by Goldman and UBS, has rejected the offer on the table of 745p per share as too low, even with a 40 percent premium attached. Carr and Chief Executive Todd Stitzer figure they can do a better job on their own.

Analysts had caught a scent of the deal in July, but they had not expected one to come so soon. News of Kraft’s late-August approach broke on Monday, pushing Cadbury’s shares up toward the 800p mark – a valuation analysts said was more realistic, and one that Cadbury’s board might be willing to recommend to its shareholders.

Price per eyeball

jackie-chan.jpgUntil today,’s Felix Salmon had no idea that there was a mega-billion dollar eye care company called Alcon — but when he pulls out his calculator he comes up with some interesting numbers:

“On a valuation level, let’s say that the population of the world is 6.6 billion, and let’s exclude the ‘bottom billion’ for the time being as people who are never going to avail themselves of Alcon’s products. That leaves 5.5 billion people, with 11 billion eyeballs between them. Which would mean that Alcon is valued at over $4 per global eyeball. Nice.”

For the record, Reuters reports that Novartis is buying Nestle’s 77 percent stake in Alcon for $39 billion — $11 billion up front, and $28 billion between January 2010 and July 2011 — which would imply a $50.64 billion total valuation, rather than the $45 billion figure Salmon uses.