Shares in Cadbury remained broadly flat today (10 November) – a day after the company rejected a takeover bid suitor Kraft Foods – and analysts remain unsure over what constitutes a fair price for the UK confectioner.
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The Dairy Milk maker’s shares stood at 761p this afternoon, matching the stock’s closing price yesterday when Kraft tabled its formal offer.
Cadbury’s board, which has publicly voiced its opposition to the idea of a takeover by Kraft since the US food giant first revealed a tentative approach for the business in September, labelled the formal offer “derisory”.
Kraft turned its proposed September offer into a formal bid but, given the fall in the US group’s share price since the initial approach, the value of the concrete offer was 4% lower.
Analysts believe Cadbury’s recent performance merits a higher offer from Kraft, although they differ on how much the US group’s chairman and CEO Irene Rosenfeld should raise the offer from a bid that values the UK firm at 717p.
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By GlobalDataSimon Marshall-Lockyer, an equity analyst at Jefferies International, reiterated his price target of 945p and told Cadbury investors to reject Kraft’s offer as it “clearly undervalues” the business.
Kepler Capital Markets’ Jon Cox, however, reduced his target price from 850p to 825p with no sign of a rival offer for Cadbury.
Tellingly, Andrew Wood, an analyst at Sanford Bernstein, suggested a “fair and reasonable price for both sides” would be 900p a share.
“We continue to believe that a bid of GBP9.00 (or close) will get management, and shareholders on board, and get a deal done,” Wood said.
“Cadbury shareholders would be getting a massive upside to where they stock was trading before the first bid and from where it is currently trading, although they would be accepting less than what Cadbury is truly worth. While Kraft would be paying 21% more than its initial bid for Cadbury (or 26% above the current bid), it would be getting a ‘once in a lifetime’ asset and a ‘compelling’ acquisition.”
Wood added: “We consider that Kraft’s bid will need to be increased in order to make it attractive for Cadbury shareholders, but investors seem increasingly nervous that a deal just does not get done. We believe it will get done because Kraft – and its CEO – needs this deal.”
