The story of Kraft's (NYSE:KFT) bid for U.K.-based confectionery leader Cadbury (NYSE:CBY) is moving along more quickly than I anticipated. The latest installment? Cadbury management may not be so reluctant to be acquired after all.
Willy Wonka plot twists
To quickly recap, Cadbury had previously denounced packaged-foods giant Kraft's offer, asserting that the bid undervalued Cadbury's stand-alone prospects, and furthermore described the dreary notion of being "absorbed into Kraft's low growth conglomerate business model."
Speaking with The Wall Street Journal in a Monday interview, Cadbury CEO Todd Stitzer embraced a tone that shaded more toward humble pie than bold dark chocolate. Specifically, Stitzer seemingly recanted previous company remarks, announcing, "I would never say there's not some strategic sense in these businesses coming together." Regarding European and emerging markets regions, Stitzer recognized potential synergies of a combined Kraft-Cadbury.
Meanwhile, according to the WSJ, Cadbury's trying to kick the bidding process into high gear, having asked the U.K. Panel on Takeovers and Mergers to issue a deadline by which Kraft must formalize any offer. Now, I previously speculated that Nestle (OTC: NSRGY), Unilever (NYSE:UL), or even household and personal-care goliath Procter & Gamble (NYSE:PG) could emerge with counter-bids, but this move to push Kraft forward may signal no such expectation on Cadbury's part.
Alternatively, let's acknowledge that it's tough to do business while fielding a constant blitz of media and shareholder inquiries. The confectioner's assertive stance could simply reflect a desire to say "no thanks" once and for all, and return to the serious business of selling Creme Eggs and Bubbaloo.
Ah, but the candy-coated intrigue doesn’t quite end here, Fools. Hershey (NYSE:HSY), a much smaller, U.S.-focused version of Cadbury, remains the wild card. The company's largest controlling shareholder, The Hershey Trust, has reportedly hired a former Goldman Sachs (NYSE:GS) banker to advise on a potential Cadbury bid.
With $5.3 billion in annual revenue against $1.5 billion in long-term debt, it's doubtful that Hershey could raise the necessary cash to approach Cadbury's $17.6 billion market cap. That leaves financing to a possibly massive share issuance -- an unlikely route, according to analysts, given that the ensuing dilution could make bite-sized Milk Duds out of the Trust's ownership stake.
Buffett knows best?
For all of you current or would-be Kraft shareholders, let's note that Warren Buffet, whose Berkshire Hathaway owns 10% of the company, has said that Kraft's existing offer represents "full price" for Cadbury.
Shares of the confectioner, however, have shot past Kraft's bid, and they could extend that sugary ascent should Kraft telegraph a willingness to dig deeper into its pockets. In fact, at a closed investor conference, Cadbury's head noted that a multiple of 15 times EBITDA was the going rate for similar takeovers. Currently, Cadbury's shares sit at around 12.6. Fools, that sure sounds like an invitation to a wedding.
Kraft's stock, meanwhile, could continue to suffer from carbohydrate withdrawal. After all, $16.7 billion in cash and stock -- and possibly much more, given Cadbury's valuation assessment -- is a lot of dough to give up.
Other companies with the urge to merge:
