An Update on the Cadbury Acquisition

This Wednesday, the WSJ reported on the latest developments between Cadbury and two American companies interested in the purchase of Cadbury: Hershey Co., America's largest confectioner, and Kraft Foods, one of America's largest food manufacturers.

Both companies are enormous consumers of wholesale food ingredients.

Earlier this month, Cadbury rejected Kraft Foods' initial offer (worth ~$17 billion) claiming the cash percentage of the offer was too low. In addition, the business model of Kraft Foods is not in alignment with Cadbury's.

Cadbury prides themselves on being a 'purist confectioner,' while Kraft Foods is a 'conglomerate business model.'

Hershey Co, the largest confectioner in the US, already holds the license to manufacture and market Cadbury products in the US. On the surface, it seems like a Hershey takeover of Cadbury is the ideal acquisition: from one confectioner to another.

According to the WSJ, however, Hershey's will not likely make a competing offer against Kraft foods.

To paraphrase,

"Hershey's executives concede that annual revenues are too small to support the debt load needed to make a competing offer to Kraft's $16.3 billion bid.

"It could only raise about $4 billion from the debt markets without lowering its own investment rating, leaving a huge shortfall to make up."

It's a strange perspective to see Hershey Co. as too small a company... It may sound naive, but seriously, they make those wonderful 'Kisses' and... they have an amusement park!

Be that as it may, Cadbury has already shown that it wants bids to be dominated by cash, and Hershey's just doesn't have enough right now to be competitive.

Kraft, on the other hand, certainly has enough.

Despite claims by Cadbury that they are not too keen on the deal, the UK Takeover Panel is giving Kraft a deadline of November 9th for a formal offer.

How will this affect wholesale food ingredient sales and wholesale sugar sales?

It seems likely that Kraft will be purchasing more wholesale sugar and cocoa in the future.