Alexandra Zendrian, 01.12.10, 06:00 AM EST
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The Kraft/Cadbury deal might look good on the outside, but it has the potential to be soft on the inside.
In the latest news on the potential chocolate and cheese combination, Kraft Foods Inc. ( KFT – news – people ) sold one of its American pizza units to Nestle ( NSRGY.PK – news – people ) for $3.7 billion. This cash can be put toward its acquisition of Cadbury ( CBY – news – people ). Kraft has been working to sweeten its offer to Cadbury and will approach the chocolate company with a new bid before Jan. 16. (See “Cash For Cadbury, Pizza For Nestle.”)
For Cadbury, a merger would helpful.
“With cocoa having moved from 2200 metric tons to 3244 metric tons in the last year, any economies of scale through size and efficiencies would make rising commodity prices less of a factor,” says LPL Financial Chief Investment Officer Burt White. This might even allow Cadbury to better set prices in the market and undercut its competitors, he adds.
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