Nestlé, Hershey could still enter race for Cadbury

Posted by Daniel Palmer on 11th November 2009

Hershey and Nestle will not “willingly stand by” and become less competitive in the global confectionery market – and could still launch a rival bid for Cadbury, one analyst has suggested.

Simon Marshall-Lockyer, an equity analyst at Jefferies International, has insisted that a joint offer from Hershey and Kit Kat maker Nestle could still emerge for Cadbury, which this week (9 November) rejected a takeover bid from Kraft Foods.

Kraft’s cash-and-stock offer for Cadbury remains the only bid on the table despite ongoing speculation that Hershey and Nestle could join forces and launch their own sortie.

Marshall-Lockyer, who urged Cadbury shareholders to follow the Dairy Milk maker’s board in rejecting Kraft’s offer, said he believes the US food giant could still face competition for the UK firm.

“We persist in our belief that neither Nestle nor Hershey will willingly stand by and be marginalised into distant number three and number four positions in global confectionery,” Marshall-Lockyer said.

“Broadly reported indications of a possible joint Nestle/Hershey counter-bid for Cadbury would seem to make sense whereby Hershey would take circa 70% of [Cadbury’s]chocolate and sugar [confectionery] while Nestle would take gum and the balance of 30% of chocolate and sugar confectionery from Cadbury.”

Nestle and Hershey have both kept their cards close to their chest but not everyone in the analyst community believe the companies will move for Cadbury.

Phil Gorham, a US analyst at Morningstar, told just-food that Nestle’s stated ambition to focus on healthier products could mean a bid for Cadbury is unlikely.

“Nestle is trying to transform itself into a health-and-wellness product company, and we think that it would prefer to allocate capital to acquiring companies that offer niche functional foods,” Gorham said. “An acquisition of Cadbury would expand Nestle’s confectionery brands, and make it more difficult to reposition its product portfolio over time.”

He added: “The recent announcement that Nestle is to buy back shares could be an indication that it does not intend to embark upon a major acquisition in the near future.”

Jon Cox, an analyst at Kepler Capital Markets in Zurich, agreed that Nestle had indicated that it was not interested, which, he argued, meant Hershey would not be in the running as the US chocolate maker could not afford to bid for Cadbury on its own.

However, Cox put forward PepsiCo as a possible rival for Kraft. “PepsiCo is looking for emerging markets and further diversification from carbonated soft drinks. It also has snacks which is not far from the confectionery aisle and a strong balance sheet enabling it to do a deal,” Cox told just-food.

“However, it is tied up integrating its bottlers so perhaps Cadbury has come along at the wrong time.”

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