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Kraft still most likely to win Cadbury deal, says analyst

By Caroline Scott-Thomas , 01-Dec-2009
Last updated on 02-Dec-2009 at 15:33 GMT2009-12-02T15:33:56Z

Kraft has mismanaged its Cadbury takeover attempt but is still the favorite to get the deal done, according to Andrew Wood, senior research analyst at Sanford Bernstein.

It has been three weeks since Kraft put forward its hostile £9.8bn ($16.3bn) offer for the British confectioner, which was rejected as ‘derisory’ by the Cadbury board. The company has until December 7 to put documents detailing the offer before Cadbury shareholders, although analysts have suggested that a much higher bid is needed.

Since then, other potential suitors for Cadbury have either come forward or been rumored to be considering an offer. There has been speculation that Kraft could make a joint bid with either Hershey or Ferrero, that either or both could make an offer jointly or separately, and there has been media speculation that Nestlé could be considering a bid. There have also been rumors that Cadbury could consider making a ‘Pac-Man’ bid for Kraft’s confectionery business.

Wood said on Monday that he thought that this latter option would be “great for Cadbury, but is very unlikely to succeed.”

He added: “Our view remains that Kraft remains the favorite to complete the deal (despite its mismanagement of the process to date).”

Kraft regrets?

Wood said that he thought Kraft was likely to be regretting its bid approach.

“Kraft’s attitude was probably founded on the belief that no counterbidders would emerge, and on not wanting, in the words of its CEO, to ‘bid against itself’. We always considered this was an incorrect assessment, as Kraft was bidding ‘against’ Cadbury and its long-term focused shareholders,” he said. “Plus it now seems like a misjudgment as other bids are looking likely.”

However, despite the rumors, a Nestlé bid would be “a big surprise”, according to the analyst, although it could be a positive move for the world’s largest food company, to make it “a global leader in the attractive confectionery category”.

He added that a Hershey solo bid seemed like “a huge stretch” due to a lack of available resources, and that he considers a joint Hershey/Ferrero bid to be more feasible than a Kraft/Hershey bid, because it would lead to a more equal distribution of Cadbury between the two.

Wood also reiterated his November 10 position that “£9.00 seems fair for both sides” – a level that equates to a bid of about $20bn.

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