Nestlé could be the key to any Hershey offer for Cadbury: analyst

Posted by Daniel Palmer on 7th December 2009

Nestle could buy back the Kit-Kat and Rolo brands in the US from Hershey, giving the US chocolate giant the power to fund a combination with Cadbury, according to one industry analyst.

“We believe that there is compelling logic for both Nestle and Hershey to seek to structure an alternative to the current offer for Cadbury from Kraft,” analysts David Hayes, Alex Smith and Guillaume Delmas at Nomura said.

“We estimate that Nestle has an opportunity to acquire the Kit-Kat brands in the US, add gum and medicated products to its confectionery portfolio, and create real value by using its balance sheet capacity.”

This, Nomura said, could see Cadbury ultimately being sold for up to 900p per share.

The analysts said it sees Nestle’s involvement in the process likely to take one of three forms.

“We do not see an outright bid for Cadbury from the company,” Nomura said and offered three options – the company buys back Kit-Kat and Rolo brands in the US from Hershey and Hershey then combines with Cadbury; Nestle buys gum and sells the chocolate; or Cadbury sell the gum business to Nestle for full value and maintains the cost saving programme in confectionery.

Nestle may consider buying the KitKat and Rolo rights from Hershey for US$2.2bn, the analysts wrote in a note. Cadbury shareholders would get about 336 pence ($5.60) a share in cash in such a combination, with Hershey taking a 45% ownership stake, the analysts estimated.

“We see compelling logic for both Hershey and Nestle to involve themselves in this situation, and expect this to play out in the next few weeks,” the Nomura analysts wrote.

Kraft Foods today sent details of its takeover bid directly to Cadbury shareholders, with the US food giant’s boss Irene Rosenfeld insisting the offer is in the “best interests” of both companies’ investors.

The US group had until the end of Monday to send the terms and conditions of the offer to Cadbury’s shareholders but chose to disclose the details of its bid – already labelled “derisory” by the Dairy Milk’s board – ahead of the deadline.

Kraft has offered Cadbury shareholders 300 pence in cash and 0.2589 “new Kraft Foods shares”. The Milka chocolate maker has also tabled an offer to Cadbury’s ADS holders worth 1,200 pence in cash and 1.0356 new Kraft Foods shares.

just-food is the world’s leading portal for the global pre-packaged food and retail industries. Its daily mix of breaking news, views, analysis and research serves over 100,000 food executives each month.