Kraft the frontrunner for Cadbury: analyst

Posted by Daniel Palmer on 2nd December 2009

Kraft Foods remains the favourite to buy Cadbury, a leading industry analyst claimed today (1 December) even if US chocolate maker Hershey tables a bid for the Dairy Milk maker.

Andrew Wood, senior research analyst covering European food companies at Sanford Bernstein, said Kraft was still the front-runner to buy Cadbury.

Wood suggested, however, that a “likely” bid from Hershey – either on its own or alongside Ferrero or Nestle – would mean an acquisition of Cadbury would not be the “steal” that Kraft had hoped.

Kraft remains the only suitor to have made a formal bid for Cadbury. Its hostile offer – tabled on 9 November – was rejected as “derisory” by the UK confectioner, which also makes Hall’s candy and Trident gum.

Two weeks ago, Hershey confirmed an interest in Cadbury and said it was mulling a possible bid for the business. Since then, Hershey has kept its counsel, although the Wall Street Journal last week claimed the company had asked law makers in Pennsylvania to allow the company to potentially bid for Cadbury.

Hershey’s announcement of an interest in Cadbury was followed by an separate statement from Ferrero confirming the Italian confectioner was in the “preliminary stages of evaluating its options” on the UK firm.

Bernstein’s Wood claimed a merger between Cadbury and Hershey would be “bad news” for the UK’s largest confectioner. He added that a bid involving Hershey would likely “come up short” – but force Kraft to pay “a much more reasonable price”.

Wood said: “We believe that Nestlé’s interest will only be on the coat-tails of a Hershey bid, to try to get its Kit Kat brand back in the US. While we think a merger of Cadbury and Hershey would be bad news for Cadbury and its shareholders – and would probably be rejected by the shareholders – we believe a Pac-Man defence to acquire Kraft’s confectionery business would be great for Cadbury, but is very unlikely to succeed.

“Our view remains that Kraft remains the favourite to complete the deal, despite its mismanagement of the process to date, and we continue to retain our price target of GBP9. We believe that it will need more than Kraft’s current offer, especially with the potential emergence of counter-bidders, to get Cadbury to sell given the strong expected operating performance.”

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