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Monday November 23, 2009

Hershey ponders US$17bil solo bid for Cadbury


It is believed to have lined up deal funding and also weighing a joint bid with Ferrero

PHILADELPHIA: US chocolate maker Hershey Co is considering launching a bid of at least US$17bil for British chocolatier Cadbury Plc as it seeks to trump a hostile offer by Kraft Foods Inc, a source familiar with the matter said on Friday.

Hershey had lined up deal funding from Bank of America and JPMorgan Chase & Co to make a solo offer for Cadbury, but was also still weighing a joint bid with Italy’s Ferrero Spa, the source said.

The interest from Hershey could add new pressure on Kraft to sweeten its US$16.5bil offer, which Cadbury rejected as derisory.

(Top) A Hershey’s Candy pillow is seen inside a store in New York and (below) a Cadbury chocolate product is seen on a supermarket’s shelves in central London. — Reuters/AP

“It’s still very fluid and there are multiple prongs to this,” the source said. “It’s still very early. But they need at least US$17bil to top Kraft.”

Citing people familiar with the matter, the Wall Street Journal reported on Friday that the impetus for the Hershey bid came from the charitable trust controlling the company.

The trust was pushing Hershey chief executive David West to compete with Kraft’s offer, but wanted to structure a deal so that it remained in charge of Hershey, the report said.

Officials for the Hershey Trust were not immediately available for comment. Hershey, Kraft and Cadbury declined to comment.

A solo Hershey bid would be the most transformative move the company has made in its 100-year history. The company’s market capitalisation stands at US$8.3bil, while Cadbury is valued at US$18.1bil.

“Given that they generate 85% of their sales from the domestic market, gaining access to Cadbury’s platform would be highly advantageous,” said Erin Swanson, analyst at Morningstar, noting Cadbury’s presence in emerging markets.

She added that Hershey would be able to expand its candy and gum business. But a deal would mainly aim to capture new growth as there is little overlap between the companies’ businesses and therefore slim opportunity for cost savings.

Hershey’s offer could include at least US$10bil in cash from Hershey and US$2bil in new Hershey shares, plus US$3bil to US$5bil from outside investors in exchange for equity in Hershey, according to the Journal.

That would trump the US$6.74bil in cash indicated in Kraft’s cash-and-stock offer for Cadbury, though Kraft has secured US$9.2bil in financing and could raise the cash component of its offer.

But one source familiar with the situation questioned whether Hershey was getting ahead of itself. “Buying a company more than twice its size could be a risk and the Trust has previously shied away from risk, given its mandate,” the source said.

A key figure in any Hershey bid is Byron Trott, a favourite banker to Warren Buffett, whose Berkshire Hathaway is the largest investor in Kraft. The Kraft connection goes further, as Hershey chief executive West was formerly an executive of the world’s No. 2 food maker.

In another development, Bloomberg reported yesterday that Swiss food giant Nestle may consider a bid for Cadbury. The company was still weighing its options and may decide against a bid, Bloomberg said, citing two sources.

Nestle declined to comment. — Agencies


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