Blog: Dean BestCompetition for Cadbury heats up

Dean Best | 23 November 2009

In what is rapidly becoming a long-running takeover saga, last week our pages brought you news that Kraft Foods' bid for Cadbury could face a counter offer, coming from a perhaps surprising quarter.

The secretive, family-owned Italian confectioner Ferrero confirmed that it is examining a potential bid for the UK dairy Milk maker. Simultaneously, the almost equally as secretive Trust-controlled US chocolate maker Hershey confirmed that it is reviewing its options with regard to Cadbury.

Reports have suggested that the two companies are in discussions to launch a joint offer to rival Krafts' proposal. According to reports, Hershey is pushing for a US$17bn bid, trumping Kraft's US$16.45bn proposal – which continues to depreciate as the group's share price drops – but still short of the valuation offered by some analysts.

The synergies and expansion potential offered by Cadbury – which does represent a mouth-watering opportunity with its strong top line growth and key presence in emerging markets such as India – seems to have overcome any qualms that the Hershey Trust and Ferrero's controlling family may have had over relinquishing a degree of dominance over their respective businesses.

Indeed, according to the Wall Street Journal, the Hershey Trust, so long viewed as a barrier to Hershey's acquisitive expansion, is actually the driving force behind the acquisition attempt.

Originally cast in the role of a white knight, it soon emerged that, if successful, Ferrero and Hershey are likely planning to break Cadbury up. Ferrero would probably take control of Trident and Cadbury's other sugar-based products, while Hershey would gain Cadbury's chocolate businesses in emerging markets and Europe – where the US giant is under represented.

What is key here, it seems, is Cadbury's well oiled distribution channels and keenly contested shelf space in high-growth markets as much as the business' brands.

Meanwhile, flying in the face of its professed goal of becoming a company purely focused on health and wellness, reports continue to circulate that Swiss food giant Nestle is considering entering the fray.

In other news from the UK, Marks and Spencer scored quite a coup when it revealed it has poached Morrisons chief executive Marc Bolland to take over from Sir Stuart Rose in the New Year.

While the announcement may have raised some eyebrows, coming as it did the day before Morrisons unveiled its third-quarter results, the appointment is widely viewed as a positive step for the UK food and clothing retailer.

And, even as Morrisons revealed that its same-store sales growth had slowed, change at the top does not necessarily spell bad news for the supermarket operator either. Some analysts argue that a fresh approach – particularly to the questions of online and non-food retailing – could be just what the company needs to propel sustainable growth in the future.

Nevertheless, with Morrisons not expected to appoint a replacement for Bolland until early next year, the added uncertainty is sure to depress its share price in the near-term.


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