If Kraft Foods Inc. (NYSE:KFT) raises its hostile offer for British confectioner Cadbury plc (NYSE:CBY), which it seems hedge fund manager John Paulson is
betting on, European Commission approval is likely. So says Peter King, a corporate partner at Weil, Gotshal & Manges LLP.
On Nov. 11, the commission set a Dec. 14 deadline to review Kraft's £9.8 billion ($16.3 billion) offer for Cadbury. It could opt to extend its first-phase probe or open an in-depth phase-two probe.
King said, "I have not seen any suggestion so far that there is any substantial overlap in the businesses of the two parties or any other serious antitrust issue, and I think it is very probable that the Commission will clear the transaction after the first phase of their investigation."
He concedes, "Commission investigations are rather unpredictable, so we can't be sure they won't come up with some basis for a phase II investigation. But it seems unlikely. Cadbury has to defend itself on other bases -- and is doing so on the simple basis that the price is too low!"
Kraft formalized its bid on Nov. 9 after jockeying for two months with Cadbury over price, which it did not raise -- a fact that surprised analysts even though there are no other bidders. In response to Kraft's unchanged offer, Cadbury chairman Rober Carr said in a
statement, "The repetition of a proposal which is now of less value and lower than the current Cadbury share price does not make it any more attractive. As a result, the Board has emphatically rejected this derisory offer."
The general consensus is that Cadbury would likely accept an offer around 800 pence per share. Kraft is offering 717 pence per share. A merger would make Kraft-Cadbury the world's No. 2 confectioner behind Mars Inc. -
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