Nestlé sale adds flavour to tussle for confectioner

MUCH shadow-boxing has marked the Cadbury takeover situation. A new phantom twist came yesterday when Swiss food giant Nestlé announced it was set to raise a hefty $28 billion (£17.4bn) from the sale of its remaining 52 per cent majority-holding in eyecare group Alcon to Novartis.

"Phantom" twist because Nestl has not actually said it might use some of the Alcon money to launch a rival bid to the only offer on the table for Cadbury, the hostile 10bn bid from Kraft Foods of the US.

Unsurprising continued reticence, really, as Nestl could have given a Trappist monk a run in the silence stakes regarding the Cadbury situation thus far.

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But yesterday's sale to Novartis does at least give the Swiss food giant a sizeable warchest to move on the British confectionery group if it wishes, particularly given that the City thinks Kraft's offer is cheese-paringly opportunistic.

The truth is Nestl can afford to sit on its hands even if it is interested in raining on Kraft's unwelcome parade.

The City's Takeover Panel recently extended the deadline for Cadbury to produce new material information in its defence by three days to 15 January. But Kraft's deadline for raising its current offer remains 19 January.

There could be good reason for Nestl to keep its chocolate powder dry. Then it could see some of what Kraft probably still has in the locker first before committing its Alcon cash.

It is not certain Nestl, a big beast in the food manufacturing jungle, will enter the Cadbury fray at all just because it is about to accumulate a shedload of cash for getting out of eyecare.

But the speculative hare has partly been set running afresh by Nestl saying yesterday it is only committing $9.64bn to a new share buyback programme over the next two years once its existing programme is completed this year.

That would still leave it with a sizeable injection of new capital from the Alcon deal to enter a Cadbury auction.

Meanwhile, in the off-stage shadows there remain whispers that Hershey of the US or Ferrero of Italy may also come in as white knights for the British damsel in distress.

Well, if they are interested, these two gallants have been in no hurry to unfurl their pennants, and it is piquant that the Nestl development has given them food for thought as well.

Serving up a recovery

NOTABLY reduced stock levels and a flaccid pound helping exporters will have contributed to the better-than-expected manufacturing figures for December. And there could still be a manufacturing relapse when the stimulative measures to the economy are withdrawn by the Bank of England, be it "creating" money electronically by buying assets to record low interest rates.

But we should not look economic gift horses in the mouth. The latest data further suggests that Britain moved out of recession in Q4 of 2009, and it is quite a while since manufacturing has played any meaningful part in an economic upswing.

The Chartered Institute of Purchasing & Supply's headline activity index reached 54.1, up from 51.8 in November and much better than the 52 forecast by City economists.

The average reading for the fourth quarter of 2009 was also the highest since the end of 2007.

Perversely, it is the greater strength of manufacturing – against a very weak previous performance, it should be said – that could make the BoE pull the plug on further quantitative easing once the 200bn target is reached in February.

Such a move could potentially help undermine the strength of the recovery in the blue-collar economy. It is a ticklish dilemma made easier by a stark fact.

Realistically, it is far more likely to be when the services industry sails before the wind again, rather than manufacturing, that we will know things are on the up.

The services sector generally is the lion's share of the economy now, with the Confederation of British Industry putting out its latest quarterly financial services industry data this coming weekend.

Nobody is expecting the data will root up any trees. But that forthcoming financial services' snapshot is likely to prove much more germane in the medium term than manufacturing's fortunes (important though they are) in where we are going regarding the recovery and the likely length of the journey.