Leon Neal
Shares in Cadbury edged up on Wednesday on hopes Hershey and Italy's Ferrero would mount a $16-billion plus (U.S.) bid, but analysts and investors still see U.S. hostile bidder Kraft as the front runner.
U.S.-based Hershey is much smaller than Cadbury, has high debts and is controlled by a charitable trust, while the very secretive family-owned Ferrero has made few acquisitions, prompting doubts that the two could mount a successful bid.
"It's not impossible, but we would be skeptical," said analyst Alex Molloy at brokers Credit Suisse.
Cadbury shares rose back above 800 pence for the first time in almost a month to a high of 802-1/2p before last trading up 0.9 per cent at 795p by 1050 GMT compared with Kraft's cash and share bid which currently values Cadbury shares at 726p.
Late on Tuesday, a source said Hershey and Ferrero, famed for its Nutella chocolate spread and Ferrero Rocher chocolates, were discussing a bid to fend off Kraft's hostile bid, but talks were "very preliminary, very early in the process."
Ferrero and Cadbury have both declined to comment, while Hershey confirmed it was reviewing its options.
"It's a very long shot, and we would be very surprised if they (Hershey-Ferrero) got involved," said one top 10 Cadbury investor, speaking on the condition of anonymity.
Analysts said Kraft took months to agree a $9.2-billion loan for its Cadbury bid, while Ferrero-Hershey would have to fund a $16-billion plus bid with debt rather than equity, as Ferrero is privately owned and Hershey controlled by the trust.
"I'm doubtful that a joint bid would come to fruition. A deal would be hard to structure, we don't know what the Hershey trustees think about it, and it seems as if the head of Ferrero has reservations," a trader said.
JP Morgan is advising Hershey and is likely to provide financing to support its client, while Rothschild is advising Ferrero, according to sources close to the situation.
Kraft first disclosed its cash and shares offer for Cadbury in early September, and after Cadbury rejected the offer the U.S. group turned hostile with its bid on Nov. 9, which Cadbury again rejected, describing the $16.2-billion bid as "derisory".
The initial September offer was valued at 745p a Cadbury share but the fall in Kraft shares and the dollar had knocked the bid value to 717p by the time it turned hostile this month.
Most analysts and investors expect Kraft will have to raise its bid for Cadbury, the world's second-largest confectionery company after Mars-Wrigley, to 800p or above to succeed, and Credit Suisse's Molloy expects them to have to pay 820-830p.
Kraft CEO Irene Rosenfeld has been playing a long game, determined not to overpay for the 185-year-old British maker of Dairy Milk chocolate, Trident gum and Halls cough drops, as most analysts previously said they saw no other viable bidders.
Kraft has 28 days, or up to Dec. 7, to publish its official offer document, which will then trigger the 60-day bid timetable under UK takeover rules that would give Ferrero-Hershey until early February to come up with any rival bid for Cadbury.