James Moore: There's not much sweet about Kraft
Outlook: Kraft needs Cadbury a lot more than Cadbury's needs Kraft
Tuesday 08 September 2009
It almost feels as if the last couple of years never happened. The summer is all but over, the City is back to work and along comes a sprawling US conglomerate with a multi-billion pound takeover proposal aimed at grabbing some of Britain's most iconic brands.
Traders start to drool at their desks at the prospect of a M&A boom and the stock market sets off for the sky. Cadbury is the company they expect will be the catalyst for a bumper haul of sweeties at bonus time next year.
They should have a care before ordering in extra toothpaste.
It's a stretch to suggest that this will lead to a resurgent City of London. It has all the hallmarks of an opportunistic one-off attempt to grab a string of prize assets at a relatively cheap price rather than a return to the halcyon days of the boom times. Going public with the proposal – as Kraft did yesterday – was an attempt to force Cadbury's board to remain around the table.
It's a tactic that looks to have backfired given the way Cadbury's shares responded. With a host of potential counter bidders in the wings, its investors want more and the company appears to have them onside. For the moment, anyway. Legal & General was first out of the traps noting that Kraft's £10.2bn offer is hardly generous given "the valuations put on other recent food transactions". L&G doesn't mention the strength of Cadbury's brands, but it easily could have. If you want that sort of portfolio you have to pay up. And Kraft isn't yet doing that.
The US company is also not exactly tabling its proposal from a position of strength. The stock might have picked up recently, but long-term it has been treading water.
Kraft seems to be hoping that Cadbury can sprinkle some much needed sugar on to its shares by transforming it into a global super-company. But to do this the Kraft needs Cadbury a lot more than Cadbury's needs Kraft.
It's offered a few sticks of gum for the unions to chew over – promising to keep jobs in Britain that Cadbury had pledged to send to Poland. That might seem like food for thought, but it will be interesting to see how long that particular promise lasts past its sell by date if the US group ultimately wins the day.
Kraft has talked the talk about the prospects for the company that a deal will create. Fine and dandy. But what it may have done is simply open the door up to a counter-bidder which is prepared to put the money on the table for what is a rare opportunity to acquire a stable of top flight brands. And what Kraft has done, whether Cadbury's chief executive Todd Stitzer, likes it or not, is put Cadbury in play. The dance has begun and the company can not last on its own. The best thing he can do now is secure the best possible offer for it.
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