Blog: Dean BestCadbury mulling Pac-Man defence?

Dean Best | 25 November 2009

As the long-running Kradbury saga rumbles on, today's (25 November) reports hot off the rumour mill suggest that Cadbury is considering a Pac-Man defence in its attempt to remain independent from Kraft Foods, or, at least, push up the bid price.

Cadbury has repeatedly insisted that Kraft's bid “significantly undervalues” the company. And, indeed, Cadbury's share price has risen to the extent that the bid does not match the value of the group's shares. This afternoon, Cadbury was trading at 810 pence a share (at 15.48 GMT), while Kraft's bid was valued at 722 pence a share.

According to a report in the New York Post, banking sources have suggested that if a 'white knight' bidder – possibly in the form of Hershey of Ferrero – fails to emerge, Cadbury will "swallow the big pellet" and turn on the pursuing Kraft with a counter bid for its smaller confectionery business.

As in Pac-Man, prey would become predator and Kraft will be placed on the back-foot. 

With its current low debt levels and the loosening of credit, it certainly seems likely that Cadbury could afford the acquisition.

Cadbury would benefit from the same synergies that have been lauded by Kraft as compelling rationale for the deal and, like Kraft, there are few antitrust issues that could put a spanner in the works. And, if a Kraft-Cadbury merger were to go ahead, it would combine the word's second- and fifth-largest chocolate makers, vaulting the combined entity to a scale comparable with the current number global number one, Mars.

While the strategic thinking behind the merger is clear – for both companies – perhaps what is worth bearing in mind is the role of Cadbury's board in all this.

Behind all the tough talk coming from Cadbury chairman Roger Carr is the need to put pressure on Kraft to raise its offer, as that is what is in the best interests of existing shareholders in the company.

If a competing offer – and ensuing bidding war – fails to emerge, Cadbury is essentially considering making its own competition to push the price up.

Nevertheless, for this strategy to work, Cadbury would need the proposal to be watertight, as it would have to convince investors that there are other options.


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