Kraft Foods Inc.'s (NYSE:KFT)
third-quarter earnings report on Tuesday appears to have undermined its $16 billion hostile takeover proposal for Cadbury plc (NYSE:CBY), with sales declining a worse-than-expected 5.7% even as earnings per share comfortably exceeded consensus forecasts.
The Northfield, Ill., food group was expected to artfully deploy the figures to argue that it is the best manager for Cadbury; Cadbury itself employed its own trading bulletin to full effect last month to assert its independence. Instead, the report, coupled with Kraft CEO Irene Rosenfeld's insistence Tuesday that she will maintain acquisition "discipline" has tempered expectations Kraft will lodge a formal bid by the U.K. Takeover Panel's Monday deadline.
Analysts at J.P. Morgan Chase & Co. (NYSE:JPM) are notably undecided, with U.K.-based Pablo Zuanic, who covers Cadbury, voicing a "growing belief" that Kraft will walk away as he cut his price target on Cadbury by 5% to 780 pence ($12.89). But colleagues Terry Bivens and Jason English, who cover Kraft for the bank from New York, said: "We continue to believe that Kraft will make a formal offer by the deadline." They said that Kraft may initially offer less than the 800 pence to 820 pence per share that they estimate it will ultimately need to pay for Cadbury.
Kraft's original offer for the maker of Dairy Milk chocolate and Trident gum was worth 745 pence per share as of Sept. 4, breaking down into 300 pence per share in cash and 0.2589 of a Kraft share. The proposal was worth 735.7 pence as of Tuesday's close, while Cadbury shares were trading at 772.5 pence by early afternoon in London on Wednesday.
Some analysts think that Kraft might walk away and leave Cadbury to feel the pain of rising import prices before returning with a bid next year. Could Rosenfeld's insistence Tuesday that she will impose a range of conditions on the Cadbury purchase -- including that the deal be cash accretive by year two -- be a prelude to her doing just that?
- Laura Board
Continue reading below
