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.