By Dana Cimilluca
How many advisers does it take to decide whether to make a takeover bid?
In the case of Hershey, the answer appears to be no fewer than four.
- Bloomberg News
- Animated Hershey’s products outside “Chocolate World” in Hershey, Pa., in 2002.
Hershey is trying to decide whether to respond to Kraft Foods’ surprise bid for Cadbury, which was valued at 10.2 billion pounds ($16.75 billion) when it was made last week, with an offer of its own. The Pennsylvania candy maker and the trust that controls it have gradually built their stable of advisers, starting with J.P. Morgan Chase, then adding Perella Weinberg Partners.
Now they have brought in two others: Watch Hill Partners, a boutique M&A firm, that was recently bought by FBR Capital Markets, and Byron Trott.
Mr. Trott’s involvement is especially interesting, given his ties to Warren Buffett. Mr. Trott ran Goldman Sachs Group’s Chicago office before he left this year to start his own firm, with Mr. Buffett’s backing. Mr. Buffett has praised Mr. Trott in his annual letter to investors of his firm, Berkshire Hathaway, saying Mr. Trott understands the company better than any other investment banker.
Mr. Buffett could play an important role in how the Cadbury takeover drama plays out, given his position as the biggest investor in Kraft and one who has a lot of cash he could potentially use to influence the outcome. Mr. Buffett agreed to put about $6.5 billion into Mars’ $23 billion acquisition of Wm. Wrigley Jr. last year–a deal that none other than Mr. Trott brought him into.
It is still far from clear whether Hershey will throw its hat in the ring. The hurdles to a bid of its own are formidable, starting with the fact that Hershey is considerably smaller than either Kraft or Cadbury. Hershey would likely need to issue a boat load of stock to fund such an offer, something that would dilute the trust’s ownership stake and could have an adverse impact on its existing shares. Funding the bid with borrowed cash would put its credit rating at risk.
But since no other company could give Hershey the exposure to foreign markets and new products that Cadbury would, Hershey will have to take a serious look, a point underscored by the legion of bankers it has rounded up. The stakes are high for all the parties, as a deal could dramatically alter the industry landscape for the next several decades.
People familiar with the matter say the trust and the company are still examining their options, and haven’t decided yet whether to make an offer.
–With Jeffrey McCracken
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