Europe’s largest food company, Nestlé, is no longer ignoring the competition surrounding chocolate and confectionery giant Cadbury and is ready to enter the fray, reports from Switzerland say.
In new developments to the Cadbury saga:
- Nestlé is considering mounting a counter-bid for Cadbury to that of Kraft Foods and potential bids from Hershey and Ferrero;
- Hershey Trust is urged to top Kraft's USD 17 billion (CHF 17 billion) bid;
- Hershey will meet Italian chocolate company Ferrero over a possible joint bid for Cadbury;
- Cadbury’s chairman Roger Carr says he prefers a Hershey bid over Kraft.
Bloomberg has reported Nestlé executives are reviewing their options with bankers to enter a bidding war after Kraft lodged its hostile GBP 10.4 billion (CHF 17.2 billion) offer earlier in November.
Kraft, whose bid is considered inadequate by Cadbury and most analysts, is keeping its options open as well, with a higher offer possible should rival bids emerge.
Both Ferrero and Hershey have separately confirmed their interest in Cadbury. The Italian media have reported the two are meeting in November to discuss their bids.
Kraft has never said its current proposal is final.
Nestlé does not have the financial constraints of either Hershey or Ferrero – one is a charitable trust and the other a family business – but its size will be an issue.
In many markets, such as New Zealand, Cadbury and Nestlé are the dominant chocolate brands.
Cadbury’s non-chocolate confectionery lines are dominated by its Trident chewing gum, a product Nestlé lacks.
But like Kraft, Nestlé is a food conglomerate with global distribution and items ranging from dairy products to snacks and beverages.
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A Kraft-Cadbury tie-up would create the world’s largest food and confectionery company, threatening Nestlé's position.
The Wall Street Journal has reported Hershey’s controlling trust wants the company to make a USD 17 billion offer, but Nestlé has more options and resources, such as the sale of its majority stake in eye-care company Alcon to Novartis.
Nestlé said in October it was likely to exercise its option beginning in January 2010 to sell its remaining 52 percent stake in Alcon, potentially raising up to USD 28 billion.
The Journal report says Hershey can raise up to USD 10 billion, but will need another USD 3 billion to USD 5 billion in extra cash.
Global chocolate brand Ferrero will be similarly strained to mount a solo bid but a joint bid would mean the break-up of Cadbury.
The eventual outcome is complicated by relationships between some of the companies. Hershey has a licence to make and sell Cadbury products in the US, so has a strong interest in ensuring a rival doesn’t gain control of the UK company.
Hershey also has the US licence for Nestlé’s Kit Kat brand, worth around USD 3 billion.
Cadbury's chairman Roger Carr, has told the Sunday Telegraph in London his group would prefer a merger with Hershey rather than Kraft, adding that both bids could fail should they not be generous enough.
Text: Nevil Gibson for The National Business Review / Expatica 2009
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Swiss food giant Nestlé joins the competition for confectionery brand Cadbury.
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