By Keith Campbell and Andrew Cleary
Sept. 23 (Bloomberg) -- Cadbury Plc Chief Executive Officer Todd Stitzer indicated that the U.K. candy maker may consider a higher bid from Kraft Foods Inc., according to Bank of America- Merrill Lynch, the organizer of a conference where he spoke.
“By no means does Cadbury management give the impression they want to remain independent, and they stress they want to maximize value to shareholders,” Merrill analysts and salesmen said in a note sent to clients during the London conference, which took place yesterday and today. “Cadbury indicated that the next step is for Kraft to make a formal offer, at hopefully a more attractive price.”
Kraft Chief Executive Officer Irene Rosenfeld, speaking at the same conference, called Cadbury a “compelling opportunity but not at any price,” Merrill said. Stitzer told the conference that comparable transactions implied a multiple of earnings before interest, tax, depreciation and amortization in the “mid teens,” Merrill sales specialist Simon Archer wrote.
Kraft would probably have to pay 14.7 times Ebitda to be successful, according to the average of six analysts surveyed by Bloomberg News on Sept. 8. That implies a bid of about $21 billion, Bloomberg calculations show, and compares with the $16.1 billion value of Kraft’s current proposal, which the maker of Dairy Milk chocolate has rejected as “unattractive.”
Rollo Head, a spokesman for Cadbury, declined to comment on Merrill’s note.
Kraft spokeswoman Lisa Gibbons said by e-mail that a fair price “is nothing more than what someone is willing to pay.”
Kraft Targets
Cadbury shares rose 3.5 pence, or 0.4 percent, to 792 pence at 1:45 p.m. in London today, and have traded above the proposed takeover price since Sept. 7 on speculation that Kraft will be forced to raise its offer or that a rival bidder, such as Hershey Co. or Nestle SA, will emerge.
“Stitzer’s trying to force a bid so high that Kraft shareholders will say no, but if no-one else is coming in, then why would Kraft do that?” said Nicolas Ceron, an analyst at Numis Securities Ltd. in London. “I honestly think there is nothing they can do to defend this. The deal is already there.”
Warren Buffett, the billionaire whose Berkshire Hathaway Inc. is Kraft’s largest shareholder, has said the Northfield, Illinois-based food maker’s offer for Cadbury is “pretty full” as it stands, and said Kraft’s pursuit is a “tough game” given its stock’s drop since the bid was announced.
Kraft’s cash-and-stock proposal was worth 745 pence when it was announced on Sept. 7, though the offer value fell below 706 pence three days later as Kraft’s shares declined. The approach is now worth 717 pence.
Nestle Damps Speculation
Kraft shares fell 13 cents to $26.36 in German trading today, before U.S. markets opened.
Nestle told the Merrill conference this week that it isn’t interested in chocolate or gum deals, according to the note from the brokerage, and plans to capitalize on the disruption Kraft’s bid for Cadbury will cause both companies. Nestle, asked if investor-relations chief Roddy Child-Villiers commented about Cadbury-Kraft yesterday, declined to comment to Bloomberg News.
The version of the Merrill note obtained by Bloomberg News contained remarks attributed to Archer on Kraft, though not Cadbury. According to Reuters, Stitzer also criticized Kraft’s announced target to save $625 million through a Cadbury deal, saying it was modest, and told Merrill that he doesn’t expect the world’s second-largest food maker to walk away.
Last week, JPMorgan Chase & Co. analyst Pablo Zuanic said synergies from the deal may be as high as $1.7 billion, giving Kraft room to raise its bid by 135 pence to 170 pence a share.
Kraft’s current bid values Cadbury at 9.8 billion pounds, or less than 12 times ebitda, according to Bloomberg estimates.
The average analyst estimate of 14.7 times ebitda was calculated using so-called enterprise value, which includes Cadbury’s net debt of 1.8 billion pounds.
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