David Prosser: Cadbury's owners make their decision
Wednesday 20 January 2010
Outlook Give Roger Carr and Todd Stitzer their due. Cadbury's chairman and chief executive have consistently refused to argue against the Kraft deal on any grounds other than shareholder value. While it must have been tempting to try to wrap Cadbury in the Union Jack, or to wax lyrical over its philanthropic origins, the mantra of Messrs Carr and Stitzer has never varied. From day one they have promised to consider any bid that did not undervalue the business.
So is 840p or so a fair price? Well, much to Cadbury's credit, Kraft has been forced to significantly raise its original offer in order to secure its prize. Not only that, but yesterday's offer included a far greater cash component than the first bid, which means accepting the deal requires shareholders to make a much smaller leap into the unknown of Kraft's future performance. And if, six months ago, you had told shareholders what the value of Cadbury shares would be in the market today, they would have jumped for joy.
The counter-argument is that Kraft is paying much less than what we've seen previously in similar deals – notably the 2008 sale of Wrigley to Mars. And it's less than many hoped for – the initial reaction in the City when Kraft made its interest in Cadbury public last September was that a fair price would be somewhere between £10 and £12. Mr Stitzer himself has said that such a range is broadly where Cadbury might expect to be in 2013, assuming it hits its performance targets.
Even on Monday, shareholders weren't in the mood to settle for a cheap offer. Standard Life said that nothing below £9 was going to do the job. In that context, 840p doesn't look such a good deal.
The difficulty for Cadbury's management, however, is that while their public pronouncements might suggest otherwise, they are not the ultimate arbiters of what constitutes fair value. What seems to have made all the difference is that certain key shareholders – notably Franklin Templeton, the company's biggest investor, but presumably, too, many of the hedge funds that own 25 per cent of the shares – told Cadbury that 830p to 850p would be good enough.
In other words, shareholders decided Cadbury had done enough work on driving a hard bargain and that now was the moment for them to exercise their right to decide the future of the company they own. Had a majority of shareholders wanted management to hold out for a bid of £9 or more, they would have said so.
That's the thing about stock market-listed companies. Cadbury may have its headquarters in Britain, but it stopped being British many years ago. It is an international business with international owners, who are free to do what they wish with their shares.
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