BBV Banco Bilbao Vizcaya Argentaria Sa

As rivals weigh whether to top Kraft Food Inc.'s (KFT) GBP9.9 billion ($16.5 billion) offer for Cadbury PLC (CBY), they are confronting an unusual situation: Kraft has extracted exclusivity agreements from the banks it is using to finance its bid, leaving contenders with few other banks to choose from.

Kraft, which made a hostile offer for Cadbury on Nov. 9, is being advised by Lazard (LAZ) and has secured a GBP5.5 billion bridge loan from a group of nine banks lead by Citigroup Inc. (C), Deutsche Bank AG (DB) and HSBC Holdings PLC (HBC) and including BNP Paribas SA (BNP.FR), Barclays Capital, Royal Bank of Scotland Group PLC (RBS) as well as Credit Suisse (CS), Societe Generale SA (SCGLY) and Banco Bilbao Vizcaya Argentaria SA (BBV).

The lead banks have cast the net even further and the number of banks financing Kraft's bid could grow to 18, a person familiar with the matter said earlier this month.

The banks providing the multibillion-pound bridge loan have signed exclusivity agreements that prevent them from jumping ship to finance any rival bidders, according to several people familiar with the situation.

"Kraft is being very strategic and tactical - but it needs to be given the amount of paper and cash that it needs for its bid," commented Shore Capital's Clive Black.

Exclusivity agreements for financing banks - except those leading the debt package - are rare in M&A transactions, according to Brett Barragate, partner and co-head of the financial institutions group at law firm Jones Day in New York.

"It's bad for [banks'] business. They don't want to be tied up and shut out of other potential bids because they are working with one party. Only a borrower with significant leverage would be able to get banks to do this," Barragate said. "Kraft likely wants to make sure it has the full and undivided attention of its advisers and it doesn't want the banks to be restrained in their capacity to lend to it."

While Kraft's pre-emptive measure has shrunk the pool of banks available to finance counter offers, it isn't clear whether Kraft has hobbled its rivals enough to discourage them from bidding.

U.S.-based Hershey Co. (HSY) and its controlling charitable trust are working with adviser JPMorgan Chase (JPM) and Bank of America's (BAC) Merrill Lynch to raise money, people familiar with the situation have said. Italian bank Mediobanca (MB.MI) and London-based Rothschild are advising family-owned Ferrero of Italy, they added.

Renewed visibility in the corporate bond markets is providing borrowers with an obvious route to refinance loans to fund acquisitions, analyst say. This should give banks the confidence to commit capital to back any deal should another party table a bid.

Gary Jenkins, head of fixed-income research at Evolution Securities in London, said for example that JPMorgan and Bank of America Merrill Lynch could easily stump up the cash required between them to back Hershey and then look to refinance any loan quickly in the bond markets.

"But the bond market is very much open, so a bank would be willing to bridge the financing," Jenkins said.

On top of this, Jenkins said it would be surprising if Kraft's banks weren't released from their financing arrangements upon any official and public disclosure that the firm is no longer in the running for Cadbury. This would free up the banks to finance an offer from another bidder in later stages of syndication, Jenkins said.

- By Kate Haywood and Marietta Cauchi, Dow Jones Newswires; +44 207 842 9241; marietta.cauchi@dowjones.com

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