By Anjali Cordeiro and Michael Carolan
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)
Investors and analysts still believe any deal between the two companies is likely to happen at a higher price. But with no counter bidder emerging so far, Kraft didn't feel immediate pressure to raise its bid. Still, Cadbury shares continue to trade around 760 pence, above Kraft's Monday offer that valued the confectioner at 717 pence a share, signaling the market is still counting on a higher price.
Kraft doesn't appear to be completely ruling out talks of some kind, although Cadbury didn't comment on whether it is open to discussion. Kraft sees nothing in its current approach that prevents it from talking to Cadbury about a friendly deal, according to a person familiar with the matter.
Industry watchers believe there may be negotiations ahead. "I don't know [that] this is the end of the game. I would be surprised if a deal went through where it currently stands," said Kevin Dreyer, an analyst at Gabelli & Co. Gamco Investors Inc. (GBL), which is affiliated with Gabelli & Co, holds 3.3 million American depositary receipts of Cadbury and 100,000 ordinary shares. Dreyer specified that he wasn't commenting for Gamco or at what price Gamco might sell its Cadbury shares.
Dreyer said there could be discussions between the two companies behind the scenes, or, if they aren't able to work out a friendly deal, it would be left to Kraft to increase its bid and rely on shareholders. If Kraft were open to a price above 800 pence, that could open the door for some negotiations, he said.
Kraft spokeswoman Perry Yeatman said the company believes its offer is fair and attractive, and Kraft would be happy to talk to Cadbury "about the offer on the table."
Kraft in early September unveiled a stock-and-cash proposal that valued Cadbury at 745 pence a share, although a subsequent fall in Kraft's share price and the value of the U.S. dollar has since weakened the value of that offer. Kraft formalized its GBP9.8 billion ($16.3 billion) hostile bid for Cadbury on Monday but the U.K. confectioner quickly rejected the offer.
Thomas Russo, a partner at Gardner Russo & Gardner, which holds Cadbury shares, said he is still studying Kraft's offer to decide what action his firm will take, saying that he now expects "some horse trading." But Russo said he believes Cadbury can be attractive even without a deal. "Our equity returns can be quite decent even without a transaction," he says.
Still, Kraft may not want to go too high in any final offer. The macaroni-and-cheese maker is likely to remain under pressure from its own shareholders to hold down the price of any final deal. Kraft is already carrying around $20 billion in debt and needs to keep its investment-grade credit rating.
Cadbury’s board and shareholders face their own dilemma. If Kraft walks away and no other bidder emerges, the confectioner’s stock price could fall sharply. Kraft has repeatedly said that it will be a "disciplined" buyer.
Analysts in London agreed that Monday's offer was unlikely to be Kraft's final move. Charles Stanley's Jeremy Batstone-Carr said Kraft would now "dig in and wait before raising its offer in the hope that Cadbury's subsequent trading record deteriorates."
Under U.K. takeover rules, Kraft can wait 28 days to post the current offer to Cadbury's shareholders. A 60-day offer period then follows, meaning the process could extend into early February.
ING analyst Marco Gulpers said he is confident that no other bidders will emerge before then. "My view is that Kraft has a pretty good feeling on whether there is a counter offer likely or not, which there isn't, so they have time on their side," he said.
-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200; anjali.cordeiro@dowjones.com