By MICHAEL CAROLAN
LONDON — Cadbury PLC shares slipped to within pennies of Kraft Foods Inc.’s offer price Wednesday as hopes of a vastly improved offer from the U.S. food giant receded.
Cadbury shares had slipped a further seven pence, or 0.8%, by 1400 GMT Wednesday to 772 pence, following a 3.2% fall Tuesday. The drop followed a double blow for Cadbury’s investors Tuesday.
First, Nestlé SA ruled itself out of the running for Cadbury, damping hopes of a competitive auction. Then, later in the day, Kraft’s largest shareholder, Warren Buffett, fired a shot across Kraft’s management’s bow, warning them against overpaying for the U.K. confectioner.
Mr. Buffett’s warning — and his pledge to vote against a Kraft proposal to issue 370 million shares to fund the deal — may have put a cap on the amount Kraft can pay for the deal.
In an unusual move, Warren Buffett issues a public warning to Kraft, which is trying to take over Cadbury. The News Hub analyzes why Mr. Buffett acted.
Analysts and investors had been hoping for a higher offer from Kraft of up to 900 pence a share. Any revised offer is now thought unlikely to go far above 800 pence.
“Cadbury’s management may have increased the probability of remaining independent but the potential for a major advance on Kraft’s original offer may also be losing momentum,” said Clive Black of Shore Capital.
Kraft’s original cash-and-share offer — comprising 300 pence in cash and 0.2589 new Kraft shares for each Cadbury share — valued the Dairy Milk maker at £10.2 billion, or 745 pence a share.
Fluctuations in exchange rates and Kraft’s own share price has seen the value of the offer dip as low as 712 pence in recent weeks. Mr. Buffett’s intervention Tuesday–through his Berkshire Hathaway Inc. investment company — sent Kraft shares almost 5% higher as concerns the company would overpay abated.
Paradoxically, this raised the effective value of the bid to 765 pence at Tuesday’s close, just seven pence short of Cadbury’s share price. The spread between the share price and the offer price is now narrower than it has been since Kraft first approached Cadbury on Sept. 7.
“The value of Kraft’s acquisition currency has therefore risen, giving succor to the conspiracy theorists who have speculated overnight that this was Berkshire’s ultimate objective,” said Martin Deboo of Investec Secutities.
Mr. Deboo still sees a bid of 820 pence as possible, providing Kraft comes up with more cash for the deal rather than more equity. “Kraft could increase the cash element of its offer from 300 pence to 450 pence and stay on the right side of an investment grade rating,” he said in a note.
A higher offer looks essential, however. As of Tuesday, Kraft had received acceptances for its offer from Cadbury’s shareholders representing just 1.52% of the U.K. confectioner’s shares, as the vast majority of Cadbury’s shareholders appeared happy to wait for a higher bid.
In a separate development, the U.K.’s business minister Peter Mandelson again waded into the takeover saga Wednesday with a veiled threat to Kraft.
“Companies making acquisitions should set out transparently and publicly their long-term plans for the assets they propose to acquire, including company headquarters, R&D sites and main plants,” said Lord Mandelson in a speech.
In recent weeks Lord Mandelson has warned Kraft against trying to make a “quick buck” on Cadbury and said that any buyout would have to respect the company’s “work force and the heritage and quality.”
He has also conceded however that he has “no statutory power to intervene in this case.”
Share Investor Blog – Stockmarket & Business commentary
Share Investor New Zealand Business News– Get more business news
Discuss this topic @ Share Investor Forum – Register free
Share Investor’s Daily Forex Updates
Recommended Amazon Reading
 |
Security Analysis: Sixth Edition, Foreword by Warren Buffett (Security Analysis Prior Editions) by Benjamin Graham Buy new: $47.25 / Used from: $46.96 Usually ships in 9 to 11 days |
 |
The Four Filters Invention of Warren Buffett and Charlie Munger by Bud Labitan Buy new: $33.25 / Used from: $43.89 Usually ships in 24 hours |
From Amazon – Apple iPod touch 32 GB (3rd Generation) NEWEST MODEL
