And, according to senior research analyst at Bernstein Andrew Wood, Cadbury management’s major mistake has been to allow Kraft to start its bid from such a low stock price.
“If Cadbury had delivered stronger operating performance between 2003-2006 instead of disappointing the market both strategically and operationally, if it had been even more aggressive with its performance in 2007-2009 and if it had been more specific and less prudent with its short-term and medium term guidance, then its stock would have been much higher on 4 September,” argues Wood.
He added that while this would probably not have deterred a bid from Kraft it almost certainly would have driven a higher (and more attractive) final bid for Cadbury’s shareholders.
Wood claims that Bernstein analysts had long argued that the shedding of Cadbury’s beverages business, leaving Cadbury as a pure-play confectionery company, opened the door for a possible take-out of the company, with Kraft being a likely suitor.
He said that the analysts have been somewhat perplexed by Kraft’s approach to the entire bid process, including taking its original bid hostile, only to eventually come back and talk to Cadbury in the end: “Nevertheless, he said the US food group has acquired a great asset in Cadbury at a great price and should be given credit for this,” added Wood.
“Although Kraft was forced to take up its bid, or risk the loss of this prize, in the end it is paying just 13x 2009 EBITDA. We consider that this is a bargain, the lowest multiple of any major M&A deal in the global food space in well over a decade, for global leadership of the confectionery category,” he continued.
The terms of the final offer from Kraft are 500p in cash and 0.1874 Kraft shares per Cadbury share, which is equivalent to 840p per share, with Cadbury to pay a special dividend of 10p per share, effectively making the overall bid equivalent to 850p per share.
Cadbury has also agreed to pay a break fee of £117.7m, which is equivalent to about 1 per cent of Kraft’s offer, or about 9p per share, should a competing offer be recommend by the Board or accepted by shareholders.
Of course, the bid from Kraft is not the formal end of the process, it still needs to be accepted by Cadbury’s shareholders before 2 February, and there may be a competing bid.
However, Wood said the analysts believe that the bid from Kraft for the UK confectionery is high enough to deter a counter bid from Hershey and/or Ferrero and/or another third party.
The UK Takeover Panel has indicated that Hershey and Ferrero must clarify their stance on a potential bid for Cadbury by 7am on 25 January.