Overpayment likely as old-fashioned bidding war for Cadbury heats up
By Edward Helmore
LAST UPDATED 6:44 AM, JANUARY 18, 2010
The battle for chocolate supremacy is set to take a new turn when Hershey bids at least $17.9 billion this week for Cadbury. The entry of the US chocolate giant into a bidding war for the British company comes as a deadline for Kraft to raise its $17.2 billion offer approaches.
Kraft’s bid was undermined by shareholder Warren Buffett’s opposition to raise further financing through a share-offering.
Hershey chief David West, who has been against the company’s bid for Cadbury, has been promised the chief executive slot of a combined company. As planned, Hershey will bid 800 pence to 820 pence a Cadbury share, compared to a 770 pence price now offered by Kraft.
Cadbury shares, boosted by expectations of a Hershey bid, are currently trade at about 794 pence.
But can Hershey succeed? Cadbury board members say they won’t recommend a price of less than 850 pence to shareholders. If Kraft raise their bid to 800 pence before the Tuesday deadline, Hershey will likely demur from entering the contest.
Hershey can’t go above 850 without jeopardising it’s credit rating. Even Hershey’s former chief of acquisitions is doubtful about the financial wisdom of the bid. Cadbury’s price tag has already put off Italy’s Ferrero, maker of Ferrero Rocher chocolates.
The Wall Street Journal says Kraft remains in the stronger position. Its market value is five times that of Hershey and the firm could, the paper says, “take this from a beatable bid to an unbeatable one”.
As it stands, Cadbury is unlikely to accept Kraft’s bid either. “It materially undervalues Cadbury in our view and I think just about everyone’s,” says Peter Langerman, chief executive of Mutual Series, a subsidiary of Franklin Resources that owns more than 100 million Cadbury shares. “The owners of the company aren’t forced sellers. If there’s no deal, there’s no deal.”
Two months into the Cadbury acquisition saga, the situation is clear to one fund manager: “I’d be surprised if somebody didn’t overpay.” 
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