London, September 07: Kraft Foods said it was determined to pursue Britain’s Cadbury, which soared in value after it snubbed a $16.7 billion bid from the U.S. group, reinforcing hopes of a broader-based pick-up in merger activity.
Analysts said North America’s biggest food group might have to raise its offer by up to 40 percent after shares in the world’s No.2 candy and chocolate maker increased by almost half on news of the approach, settling at just under 800 pence compared with Kraft’s 745 pence-per-share pitch.
The price spike reflected analysts’ views the combination would be a success, chances of a counterbid and bankers’ hopes that rallying equity markets and a brighter economic outlook to make companies more confident about deals might mean an M&A revival was just around the corner.
“No one is questioning the rationale for this tie-up, all the chatter is about price,” one senior M&A banker said. “It’s a classic strategic deal that has been anticipated for a number of years.”
Cadbury, whose brands include Bassett’s Liquorice Allsorts, Maynards Wine Gums and its trademark chocolate bars, had sales of 5.4 billion pounds ($8.8 billion) last year while revenues at Kraft, which makes Maxwell House, Oreo cookies and Ritz crackers, were $42 billion.
Kraft said its cash-and-shares offer represented a 42 percent premium to Cadbury’s share price on July 3, when analysts raised the possibility of sector consolidation.
Cadbury’s stock was up 40 percent at 796 pence by 1228 GMT, around 15 pence below its all-time high and posting its biggest percentage gain in a single day in at least two decades.
“Our initial view is that this represents a competitively-pitched offer, but something less than a knockout blow,” said Investec analyst Martin Deboo.
—Agencies