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 After Mars Inc. unveiled April 28 a $23 billion takeover of Chicago-based Wm. Wrigley Jr. Co., buzz abounded Cadbury plc, once free from its U.S. drinks business, might look for a deal with Hershey Co. and more M&A among confectioners could follow. But Hershey, and others, may not bite any time soon.
Hershey Trust chairman LeRoy Zimmerman reiterated the company is not
for sale in an op-ed piece in the Harrisburg, Pa., Patriot-News June
15. Zimmerman, pointed to other "meaningful options." Corporate
Dealmaker's Ken Klee noted, likely an international joint venture. Nestle SA chairman Peter Brabeck says he doesn't expect to make any acquisitions larger than $200 million to $300 million in the near term, according to Dow Jones Newswires. That dampens speculation ... that the $39 billion the company will get by selling Alcon, its contact lens unit, to Novartis AG in a two-stage deal could provide the wherewithal for a larger deal. ONE BIG BITE The Mars-Wrigley news came hours after reports surfaced in the Wall Street Journal
and the New York Times a deal was imminent. The gum maker has been controlled by they
Wrigley family since its founding in 1891. It seemed the deal could revive merger speculation around Cadbury and Hershey, The Deal's Laura Board noted April 28. It had long looked as if a Cadbury-Hershey tie-up could be on the mind. Cadbury shareholders approved the de-merger April 11, just days after news surfaced that Robert Voweler, the CEO of Hershey's largest shareholder, the Hershey Trust Co., planned to retire in April 2009, as Reuters pointed out April 13. Further, Reuters said, a tie-up between the confectioners makes sense, given Cadbury's slight presence in the U.S. chocolate market and Hershey's interest in expanding overseas. SPLITTING UP Cadbury on March 19 offered details on the demerger of its U.S. drinks business and confectioner operations, little more than a week after moving to quash fears that a credit-related delay could push back the drinks group's May 7 NYSE debut. Shareholders were to receive 64 shares in the new confectioner business, Cadbury plc, and 12 in Dr Pepper Snapple Group Inc. for every 100 shares they own in Cadbury Schweppes. Based on Cadbury's close March 18, the offer values Dr Pepper at nearly $4 billion and Cadbury plc at just under £10 billion ($19.8 billion). Cadbury lists in London May 2. Dr Pepper follows suit five days later. Cadbury said March 11 the spinoff of was on track to close by May 7, hoping to curb concern of a credit-related delay. The update came nearly a month after Cadbury served up a mixed bag of news Feb. 19, revealing it would not return cash to shareholders after the demerger of its drinks business; disappointing 2007 profits; and the names of the chairmen-to-be for the two companies to remain after the demerger. Citing turbulent debt market conditions, Cadbury said in the statement it would not return cash to shareholders upon the demerger in the interest of preserving investment-grade ratings. The company also said it would bump its 2007 dividend 11% to 15.5 pence. Meanwhile, the company unveiled its North American beverages unit had a sharp drop in profit margins for 2007, which won't recover until 2009, Reuters noted. Cadbury said its full-year pretax profit fell 2% to £915 million ($1.8 billion). And the confectioner and beverage group also announced that deputy chairman Roger Carr would take over as chairman of Cadbury plc, while Wayne Sanders, the former president and CEO of Kimberly-Clark, would take the reins as chairman of Dr Pepper Snapple Group Inc., following the demerger of the North American beverages unit. The update comes little more than two months after the company disclosed activist investor Nelson Peltz had lifted his stake in Cadbury Schweppes from 3.4% to 4.5%. Peltz's Trian Partners formed a special-purpose vehicle with Qatar Investment Authority to do so, and the two could seek to further increase the holding, according to a Financial Times report citing sources familiar with the matter. The move looked as if it could also usher in further change for the confection and drinks company, which earlier in 2007 agreed to spin off its U.S. drinks business, likely after some pressure from Peltz. (See more on the drinks sale spinoff decision below.) Meanwhile, the Cadbury news came a month after Hershey's controlling shareholder orchestrated a dramatic board overhaul that inspired the resignation of eight Hershey board members and left only two in place. The sweeping changes led speculation a deal could follow for Hershey and rumored prospective merger partner Cadbury on one extreme, and that it was a move aimed at making the nation's top candy maker a stronger standalone entity, on the other. Hershey Trust Co., a charitable trust that funds the Milton Hershey Academy and controls 78% of voting power in the company through a 31% equity stake, publicly took issue with the company's performance Oct. 10. The news came nearly two weeks after Hershey announced the pending departure of its chairman and CEO Richard Lenny and about a week ahead of the company announcing a 66% decline in third-quarter profit, citing restructuring charges and higher dairy costs. The company also faces increasing competition from Mars Inc. and other rivals. The trust said Oct. 10 it was not satisfied with the Hershey's results and that it was "actively engaged" in a process to resolve the company's challenges and to implement "new growth strategies." Hershey Trust asked six directors to resign, and two others followed suit on their own accord, the company said Nov. 11. In their place, the trust unveiled plans to install:
Those who would remain on the board include David J. West, the company's COO who was tapped to succeed Lenny (who steps down from the board at year's end), and Robert F. Cavanaugh, a Hershey Trust board member. Two additional new board members would be elected by shareholders, the company said. Hershey announced Lenny's resignation Oct. 1. A Wall Street Journal report at the time said he had differences with the trust and was frustrated with a lack of autonomy in running the business. The Journal then said the trust had, without Lenny, met with U.K.-based confectioner and drinkmaker Cadbury, which is spinning off its U.S. drinks business, about a tie-up. But the trust has long maintained it isn't interested in relinquishing voting control of the company. According to Reuters, Cadbury had no comment Nov. 12 on Hershey's board overhaul. But opinion on whether the board shakeup will lead to a deal between the two sweets makers is mixed. "Analysts said a Cadbury-Hershey combination would make strategic sense, but questioned how a deal could be made to work as the Trust would still want to retain control," Reuters said. CNNMoney.com quoted Goldman Sachs: "We believe the shake-up reinforces the trust's strategy (at least near-term) to pursue a route of fundamental improvement via internal methods." CADBURY'S CALLING Meanwhile, in an effort to distill Cadbury -- the world's largest confection and drinks maker -- down to a more profitable essence, the company in March launched an auction for its Americas Beverages drinks business. Market turmoil made a spinoff or an IPO more likely, and the company confirmed Oct. 10 it would list the business on the New York Stock Exchange rather than sell it to private equity investors. Confirming a Financial Times report Sept. 14, a source told Board the company rebuffed an offer worth £6.4 billion to £6.9 billion ($12.8 billion to $13.8 billion) from one of the two PE groups bidding for the unit. Blackstone Group LP, Lion Capital and Kohlberg Kravis Roberts & Co.'s offer included the condition that Cadbury would be responsible for a large piece of the financing. Both sides are, however, still trying to come to terms. The other bid team consists of Bain Capital LLC, Thomas H. Lee Partners LP and TPG. Both groups made unsuccessful bids earlier in the summer. The unit went on the block in March, likely at the urging of activist investor Nelson Peltz. But concern over the debt markets forced the food and beverage group to postpone its deadline for final bids for the unit, scheduled for the last week of July, to give bidders more time to line up financing against a "more stable debt financing market," the company said July 27. Days later, Cadbury said it would consider a demerger of the business rather than abandon the auction entirely. Estimates that the unit could command an £8 billion price tag have been curbed to £7 billion or less. Still, the stall hasn't shorted dealmaking for Cadbury's drinks business; in fact, the company didn't even wait for the live Aug. 9 auction of bankrupt Le-Nature's Inc. operations and warehouses in Latrobe, Pa., offering $19 million, or $100,000 above the stalking-horse offer a day in advance. CUTTING CALORIES Regarding Cadbury's auction, Coca-Cola Co. has reportedly approached several private equity teams in the bidding about buying the unit's Snapple and Mott's brands to bolster its tea-based drinks business, according to a Reuters interview with Coke CEO E. Neville Isdell. A deal for the tea and juice units would help bolster Coke's position against rival PepsiCo Inc., the Wall Street Journal said July 5, whose Lipton tea ranked No. 1 in the U.S. ready-to-drink category in 2006. Meanwhile, Indian conglomerate Tata Group plc was said to be interested in the Snapple brand and was in talks with Blackstone and Lion Capital about teaming with them on a deal, the Economic Times said in late June. While it didn't name a buyer, the company outlined a strategy on June 19 to look toward bolt-on acquisitions as opposed to a major deal as some onlookers had suspected. Cadbury said June 5 it had divested three small businesses it deemed noncore, part of a plan to trim costs on the confection front and hone the London-based company's focus once the drinks business is sold, according to a Reuters report. Plans to move out of Cadbury's expensive London digs, factory closures and reductions in its "global sweets work force" are measures aimed at that end, Reuters said. On the acquisitive front, Cadbury said June 8 it had acquired 93.32% of Romania's No. 2 confectioner Kandia-Excelent SA from Kandia NV, a day after it unveiled plans to buy Turkish gum business Intergum from the Amram family for $450 million, further bolstering its gum division. And in its third small overseas deal in two weeks, Cadbury said June 18 it would launch a friendly takeover of Japan's Sansei Foods. Hershey, of Hershey, Pa., and Lindt & Sprüngli AG, of Kilchberg, Switzerland, have been cited as possible targets, though Hershey Trust has said it isn't interested in giving up voting power, which would be inevitable if it were sold to Cadbury. A small-scale acquisition strategy would probably increase the likelihood that Cadbury itself will become a target, The Deal's Laura Board points out. In addition to buyout shops, Mars of McLean, Va., Kraft Foods Inc. of Northfield, Ill., Wrigley and Nestlé SA of Vevey, Switzerland, are seen as potential suitors. But back to the drinks. Two days after it was revealed Peltz had taken nearly a 3% stake in the confection and drinks maker, Cadbury said it would consider spinning off its North American drinks unit, which posted $5 billion in sales in 2006. According to reports from London's Daily Telegraph and Reuters May 18, the company had received about a dozen offers. THE BRANDS A seasoned food company dealmaker, Peltz's ties run deep with some of Cadbury's brands. In 2000, as then-chief executive of Triarc Cos., he sold Snapple Beverage Group to the company for $1.5 billion. Peltz's stake in the world's largest confectionary maker is worth nearly $714 million. The company's brands include everything from Cadbury Creme Eggs and Sour Patch Kids candy on the confection side, to Hawaiian Punch and 7-Up on the drinks side. After Peltz's stake was revealed, Cadbury shares traded nearly $5 above where they began the week. The company seems to be due for a sugar jolt. Cadbury Schweppes said in February its 2006 profits rose about 9%, close to the bottom of expectations. The London-based company has weathered difficulties recently including a salmonella scare related to its chocolate in the U.K. and accounting errors at a subsidiary in Nigeria. And as Reuters pointed out, marketing around an arsenal of new products and high commodity costs for the company could be a tremendous drain in 2007. The company planned to launch Trident gum in the U.K. in 2007 and invest in reinvigorating the chocolate market in Britain. For a company that has evolved largely through M&A, a slew of new product launches might mean Cadbury is ramping up for some accompanying disposals. A snapshot of some Cadbury dealmaking ahead of the drinks auction:
Peltz is a longtime vocal investor in food companies and he has of late lobbied for change at Wendy's International Inc. and H.J. Heinz Co. For more on his Heinz involvement, see a related Dealwatch. -- Carolyn Murphy
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