Kraft/Cadbury: The Cadbury bid drama is advancing like a 60-second Shakespeare. The UK confectioner is asking takeover authorities to set Kraft Foods a deadline for making a formal takeover offer or walking away. This comes less than three weeks after the US snacks group made a comprehensive and fully developed proposal to buy Cadbury for £10.2 billion in cash and shares.
Cadbury’s request for a so-called “put up or shut up” mandate may seem premature. But it is a shrewd move. The seriousness of Kraft’s intentions is plain. Cadbury looks very much like a company under siege. Such uncertainty can quickly weaken relations with suppliers and make staff vulnerable to poaching. For these reasons alone, the UK Takeover Panel should grant the request.
But the appeal to the regulator also looks like a smart bid tactic — although much depends on precisely how long Kraft is given to make up its mind. Cadbury’s shares have traded above the value of Kraft’s proposal since it was made. But with each day, market risks mount. Equities feel frothy and vulnerable to correction. Long-term shareholders will get itchy to lock in the pop, and will possibly sell to arbitrageurs.
Any rival suitors will probably hold fire until Kraft makes its unsolicited bid a formal offer. In the meantime, the lack of any counterbid will only reinforce the downward pressure on Cadbury shares.
The panel must ensure that any deadline for action is sufficiently distant to ensure all potential bidders have enough time to make an approach. But that doesn’t require a drawn-out timetable. Obvious candidates such as Hershey and Nestle probably will have been prepared for this scenario.
Cadbury also knows that Kraft’s public show of aggression means it will be loathe to retreat. But Kraft still needs time to see whether it can win over its own shareholders — including Warren Buffett — and secure financing for the 40 per cent — or more — cash portion of its proposal.
This needn’t turn into Hamlet. But a commitment to reach the final act by early November should prevent the theatrics from turning into a tragedy.
