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20-Jan-10
Research Roundup: Buffett Still Has No Appetite for Cadbury
Regular readers of Research Recap won’t be surprised by Warren Buffett’s characterization of Kraft’s (KFT) pending takeover of Cadbury (CBRY) as “a bad deal.” LAst September Kraft we wrote that “it was hard to see this deal being consummated at reckless cost. ‘No deal’ may disappoint those looking for a revival of the M&A market, but that may be better than a bad deal.” We also noted back then that a bidding war was unlikely, and true enough no other bidders have put their money down.
Buffett earlier warned Kraft’s Irene Rosenfeld against paying too much. Today he told CBNC “She thinks this is a good deal, I think it’s a bad deal. I think she’s a perfectly decent person. She could be a trustee under my will. I just don’t want her making this particular deal.”
Ironically, Buffett’s comments reduced the value of the deal to 830p per share from 840p based on the decline in Kraft’s share price following his remarks.
Another Kraft investor, Pershing Square’s Bill Ackman was more positive, saying that Kraft paid a fair price.
And as FT Alphaville reports, Sanford C. Bernstein’s Andrew D. Wood thinks Kraft got an outstanding asset at a very cheap price. Martin Deboo of Investec Securities concurs:
For Kraft, the capture of Cadbury looks to us like a fulsome reward for a piece of striking opportunism and a well-conducted bid strategy.
Reuters Breakingviews calculates that with Cadbury’s help, Kraft should be able to achieve cost savings of 7.5 percent of Cadbury’s annual £6 billion in sales. “That would imply synergies with a present value of more than £3 billion. On this math, Kraft might have justified a bid close to 900 pence a share.”
“Although we always considered that 850 pence could be enough to win shareholder support, we have to admit surprise at how meekly Cadbury has apparently acquiesced,” said Jeremy Batstone-Carr, analyst at Charles Stanley & Co.
Moody’s suggested Kraft would hold onto its investment grade rating while Fitch lowered its ratings on Kraft and Cadbury’s debt to the lowest investment grade.
“My worry is they ruin [Cadbury],” D.A. Davidson analyst Timothy Ramey, told USA Today, cutting his rating on Kraft to “hold” from “buy.” But Standard & Poor’s analyst Tom Graves doesn’t see the price as too onerous but says that it now has to put execution where it mouth has been.
“This is a transformative deal in terms of what they are pursuing,”said Edward Jones analyst Matt Arnold.
However the cookie (or biscuit), crumbles, we should at least see an end soon to the confectionary puns and metaphors.
Tagged Stocks: KFT
Posted at 16:22 in External Blog | Permalink | Top
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