Hedge Funds Eye 850p For Cadbury As "Fair Price" Talk Swirls
23 September 2009 - 5:34PM
Dow Jones News
Hedge funds are looking for Kraft Foods Inc. (KFT) to offer at
least GBP11.7 billion for Cadbury PLC (CBY) as the confectioner's
chief executive, Todd Stitzer, reportedly accused the U.S. food
conglomerate of letting Cadbury's share price "drift."
One London-based hedge fund manager with an interest in Cadbury
stock said most shareholders would be happy to see a valuation of
around 15 times the company's current-year earnings - or roughly
900 pence a share, valuing the chocolate bar maker at GBP12.3
billion - but that 850 pence, or around GBP11.7 billion, would
probably be acceptable.
Hedge funds that have disclosed positions in Cadbury include New
York-based Eton Park Capital Management and York Capital
Management, also based in New York.
The potential deal, which would create a food giant with annual
revenue of some $50 billion and a 15% share of the world's
confectionary market, has been good news for hedge funds and other
investors that specialize in mergers-and-acquisitions activity. A
dearth of such activity amid the financial crisis and subsequently
poor fund returns put many M&A-focused hedge funds out of
business.
That means they probably don't have the collective weight they
used to in helping call the shots in potential transactions, but
survivors are still shaping up to be major players in situations
such as Kraft-Cadbury by taking relatively large stakes.
Eton Park, for example, has a near-2% position in Cadbury shares
currently worth GBP2 million, built up at prices as high as 788
pence. No one at the company's London office was immediately
available to comment.
Kraft's bid for Cadbury on Sept. 7 came to about 745 pence a
share, or GBP10.2 billion, comprised of 300 pence in cash and
0.2589 new Kraft Foods shares for each Cadbury share. A fall in
Kraft's share price since the announcement means that valuation is
now closer to 700 pence a share.
Shares in Cadbury were at 794 pence at 1451 GMT, up 5 pence,
while Kraft shares were down 16 cents at $26.33.
Hedge funds and other shareholders are still hoping another
bidder could emerge, a move that would likely lift the price to win
Cadbury even higher. Analysts have argued that recent deals such as
U.S. rival Mars' acquisition of Wrigley were at much higher
multiples than the 12-times earnings Kraft is offering for
Cadbury.
After Cadbury rejected the Sept. 7 bid, Kraft said it would keep
working to get Cadbury to agree to it. Cadbury in turn is trying to
convince investors of its strong prospects as an independent
company.
Earlier Wednesday, Cadbury shareholders were surprised to see
reports of comments by CEO Stitzer that 15 times the company's
current-year earnings was a fair price. It was later clarified that
Stitzer comments to investors at a Bank of America/Merrill Lynch
conference in London on Tuesday had only been about comparable
transactions having been made in the mid-teens.
The BoA/Merrill analyst who had reported Stitzer's comments in a
note said Stitzer also accused Kraft of delaying coming back with a
new offer "to watch Cadbury's share price drift on
uncertainty."
Cadbury on Monday asked the U.K. Takeover Panel to ask Kraft to
"put up or shut up" by either submitting a new bid or walking
away.
-By Margot Patrick, Dow Jones Newswires; +44 (0)20 7842 9451;
margot.patrick@dowjones.com (Michael Carolan contributed to this
report.)