Cadbury shares hit new high as Nestle chews over making bid

Published on Monday 23 November 2009 21:20

CADBURY shares hit a new high amid reports that Swiss giant Nestle is set to join the bid battle for the British confectioner.

The world's largest food company would face big anti-trust hurdles if it launched its own bid for Cadbury but might benefit from a break-up of the company through a tie-up with Kraft Foods, said sources close to the situation.

"There is potential for Nestle to play kingmaker if it wants to. Hershey (the US firm] could sell Kit Kat distribution rights back to Nestle to help finance a bid for Cadbury," said one investment banker. Nestle, the world's third-biggest confectionery player after Mars-Wrigley and Cadbury, has stayed quiet ever since Kraft expressed interest in Cadbury on 7 September, but may be tempted to look at alliances if Cadbury's fate is sealed.

"Nestle's ideal deal in the chocolate world is Hershey, and if Cadbury and Hershey combine then this would be lost forever, so Nestle's first reaction might have been to try and block any Cadbury deal," said a source.

"But if Nestle concludes that Cadbury will be taken over then it will have to look at what it can gain from a deal in terms of Kit Kat rights in the US and chewing gum," the source added. Many of the big players in the global sweets industry, including Italy's Ferrero, are already weighing rival bids to Kraft's. Kraft launched a cash and shares bid for Cadbury earlier this month which currently values Cadbury shares at 724p or 9.9 billion. Cadbury shares closed up 13.5p, or 1.7 per cent, at 814p.

Analyst Jon Cox at Kepler Capital Markets says the Kit Kat and also Rolo licences would raise less than $1 billion, but others point out Nestle could also buy up Cadbury's Trident gum and candy business in a Hershey break-up bid for Cadbury.

Jeremy Batstone-Carr at brokers Charles Stanley says it would be impossible for Hershey to take over Cadbury alone as Cadbury is around 1-1.5 times bigger in terms of sales and profit and twice as large in terms of market capitalisation.

Hershey, where the charitable Hershey Trust owns 32 per cent of the equity and controls 80 per cent of voting shares, has limited ability to raise finance without help, analysts said.

Under UK takeover rules, Kraft has until 7 December to post its offer document to Cadbury shareholders which will then trigger a 60-day takeover timetable, which means a rival bidder may not emerge until early February 2010.