Hershey has been forced to accelerate plans to go it alone with an attempt to gatecrash Kraft’s £10.5bn hostile offer for Cadbury after a club deal that included Italy’s Ferrero fell through.
By Helia Ebrahimi and Amy Wilson
Published: 6:05AM GMT 14 Jan 2010
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The US chocolate maker had been working on a secret three-way consortium bid that also included private-equity owned United Biscuits.
But those talks broke down after a meeting in London between Ferrero, investment bank NM Rothschild and US private equity house Blackstone – the owner of United Biscuits. That has left Hershey, long seen as a white knight for Cadbury, urgently pursuing a solo bid.
Sources close to Hershey said the consortium’s failure to agree terms meant the US company had no other option but to work harder to finalise details of a possible solo bid.
“Having less options has sharpened the Hershey mind,” said the source.
The US company is now grappling with three hurdles: how to win approval from its controlling charity trust, which holds 80pc of Hershey’s voting rights and will determine the mix of the proposed cash and shares bid; the terms of the financing package it is agreeing with JPMorgan and Bank of America Merrill Lynch that will allow the £5.1bn company to raise enough debt without damaging its investment-grade credit status; and the price it would have to offer to land Cadbury.
Plans could include a direct investment of £767m by the Hershey Trust in exchange for an increased stake in the enlarged group. Hershey has also employed financier Byron Trott, who is close to major Kraft shareholder Warren Buffet, to sound out other private equity to back a deal.
The development comes before next Tuesday’s final deadline for Kraft to raise its cash-and-shares offer though Kraft could raise its bid again in the face of a rival offer.
Under previous plans the proposed consortium would have made a higher offer and broken the company up with Hershey taking the US business, United Biscuits the UK operations, and Ferrero – maker of Tic Tacs and Nutella – would have got Cadbury’s European operations.
Ferrero, an entrepreneurial business still run by its Italian founding family, is notoriously conservative. The cash-rich company, led by patriarch Michele Ferrero, has always expanded without acquisitions.
The Hershey insider said that while a three-way bid was cheaper for the US chocolate maker strategically it made more sense to attempt its own Cadbury merger.
Kraft also moved to make its cash-and-shares offer to Cadbury more attractive on Wednesday, raising its profit forecast for the second time in two months. The US maker of Toblerone and Dairylea cheese expects earnings per share of $2 (£1.22), up from a November forecast of $1.97.
Kraft’s shares rose to $29.51, their highest price in the past year, on the news. That pushed up the value of its offer for Cadbury to 769p – still below the UK company’s share price, which closed last night at 789.5p.
As the deadline for Kraft’s final offer looms, unions and politicians are stepping up their campaign for Cadbury to remain independent.
The Unite union claimed a Kraft takeover could cost 7,000 Cadbury jobs in Britain, a claim strongly denied by the US company.
The defence of Cadbury will also be discussed on Thursday at a meeting in London of top institutional investors and Government ministers, led by Lord Mandelson, the Business Secretary, and Lord Davies, the trade minister.
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