Hershey, the chocolate maker based in Pennsylvania, has been lining up the billions of dollars in financing needed to challenge Kraft’s cash-and-stock proposal, worth about $17.2 billion based on Friday’s closing share price. The company has been holding talks with Cadbury over what would constitute an acceptable bid.
Hershey has been working with JPMorgan Chase and Bank of America to raise at least $10 billion, these people said. It is also planning to raise additional equity by issuing new shares and attracting outside capital. Its controlling shareholder, a trust that oversees the Milton Hershey School, has been working on fund-raising with Byron D. Trott, the former Goldman Sachs banker and Warren E. Buffett’s longtime adviser.
Cadbury’s chairman, Roger Carr, said on a conference call with investors this week that Hershey had recently reaffirmed its interest in a potential deal.
But it is not clear whether Hershey is seeking to follow through with an actual proposal or just make enough noise to persuade Kraft to pay more for Cadbury. While some within the company and the Hershey Trust have agitated for a deal, its management has been reluctant to stretch Hershey’s finances too thinly.
Hershey, which under British takeover law has until Jan. 23 to make a bid, will not make an offer without some assurance from Cadbury that it would be accepted, these people said. And while Cadbury executives have hinted that they would find a merger with Hershey more acceptable than one with a huge conglomerate like Kraft, they have strongly argued that they would prefer to keep their 186-year-old company independent.
In many ways, Hershey is finding itself in an unusual box. While it would like to acquire Cadbury, creating a candy specialist with a broad international presence, it would like to do so at a price that Cadbury would almost certainly reject. And as speculation has mounted over the last month that Hershey was drawing closer to presenting a formal bid, Cadbury shares have risen as well, making a potential takeover offer even more expensive. Cadbury’s shares closed on Friday at 793.5 pence. Kraft’s current offer is worth about 771 pence.
Hershey is also wary of endangering its investment-grade credit rating, constraining the amount of debt and equity it can raise in support of its bid, these people said. The individuals briefed on the matter spoke on condition that they not be identified because the talks were continuing and confidential. They added that the company held talks with the major credit ratings agencies this week.
Finally, these people said that Hershey could find itself quickly outbid by Kraft, whose management has identified a Cadbury takeover as the ideal tonic for its slow-growing stock. Hershey’s market value of $8.25 billion is dwarfed by Kraft’s $43.7 billion.
Other potential bidders have already fallen away. Nestlé, the Swiss food giant, withdrew from the Cadbury race early this month when it agreed to buy Kraft’s North American frozen pizza business for $3.7 billion. And Ferrero, the Italian maker of Nutella spread, is unlikely to make its own offer, according to people briefed on the matter.
Spokesmen for Hershey and Cadbury declined to comment.
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