We will now shortly discuss our opinion on the current buyout. The access to emerging economies is one of the reasons why Kraft Foods submitted a hostile bid for Cadbury on the 7th of September 2009, a deal in cash and shares that value Cadbury’s shares at 745p, or 10.2 billion pounds. Cadbury rejected this bid and on 9th of November 2009 Kraft formalizes the bid again at the same terms: 300p in cash and 0.2589 new Kraft shares for each Cadbury share. The problem is that Kraft’s share price decreased over time and now the Cadbury share is valued at around 708p.
Confectionary companies have the advantage that their products are seen as affordable luxury and because they have little store-brand competition and no decreasing sales during downturns, Kraft envies Cadbury’s profit margins (Source: BusinessWeek Online). In addition combined operations would give Kraft the chance to penetrate Cadbury’s global business with access to the emerging economies. The economies of scale arising from this merger can be significant. Kraft would not need to build infrastructure in emerging markets that would take years to be perfected.
The benefits are offset by the fact that Kraft is not able to pay much more than the released bid;
the company is risking its credit rating. At the moment the rating is on credit watch with negative implications due to the bid. . It’s been made very clear by our main shareholder (Warren Buffet), that over-paying for the acquisition of Cadbury would lead to a lowering in the stock’s value.
It is believed that Cadbury’s management does not refuse a takeover; they are fighting for a good
price. A price range between 825p and 850p per share is expected to be the target of Cadbury’s managers.
Since Hershey and Ferrero entered the biding process as a consortium it seems as if the price for
Cadbury can go up. This report tried to give an insight which company has a better financial background to master this project. Our analysis is that Ferrero is not only much smaller than Cadbury (half the market capitalization), but it is highly leveraged already.
常规数据查询多表查询与子查询 On our side, Kraft would have to raise debt from banks in order to pay the cash part of the deal. An arrangement has already been made with nine banks including lead underwriters Citigroup Inc, Deutsche Bank AG, HSBC Holding Plc and Barclays Plc. The amount of this bridge financing would be around £ 5 billion. This would make the capital gearing ratio go from 45.6% to 51.53%, which some analysts think could make our rating of BBB+ go down. This would increase our interest payments, and might sink the profit and synergies emerging from acquisition.
Cadbury is a relatively healthy, steady company which has great prospects due to its geographically diversified sales. It would be a great addition to Kraft’s portfolio of companies, but the acquisition itself might bring up some problems due to financial complications. We nevertheless think, as shareholder, that a fair priced acquisition should profit our stock value and, therefore, support the bid of our management office.
Combined operations have the potential to create a £30 billion company in annual sales according to worldwide presence and the largest distribution system.
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