Word: hershey
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Some industry experts now wonder if the Hershey Trust will rethink its stand in light of the Kraft bid. After all, if Kraft ups its ante and succeeds in acquiring Cadbury, it would create a combined company that would rival Mars in size and reduce Hershey to a distant fourth in the confectionary market with only a 4% stake, estimates Stifel Nicolaus analyst Christopher Growe...
...believe Hershey will be faced with a difficult competitive situation," says Growe, in which the larger entities could use their scale to operate more cheaply than Hershey could. "If there was ever a time for the trust to reconsider its position of maintaining control of the company, this is no doubt...
Also, most analysts think the sector's greatest growth potential in the years ahead will come from outside the U.S., especially in the emerging markets, such as China and India, where Hershey has little exposure. In 2008, U.S. sales accounted for more than 90% of Hershey's sales revenue, according to the company's 10-K filing. And analysts believe the chocolate magnate's most effective way to expand its global reach is by acquiring or merging with a company that already has a big confectionary footprint in those markets...
...Hershey could jump-start its growth by making a run for Cadbury, although it would probably be costly. Kraft's current bid, although a 31% premium over Cadbury's closing price on Sept. 4th, the last trading day before the bid was announced, values Cadbury at about 11 times 2009 EBITDA, estimates Growe. This is far below the 19 multiple that Mars paid when it snapped up Wrigley in a $23 billion deal last year. And Cadbury's growth potential, as outlined by the company's CEO Todd Stitzer last year, is bigger than Wrigley's was at the time...
...Hershey, this price tag would be tough to handle on its own and would most likely require 65% equity financing and $225 million in synergies to make financial sense, says Growe. However, Hershey could potentially team up with Nestlé to bid for Cadbury, with Hershey grabbing Cadbury's chocolate business and Nestlé picking up its chewing gum and candy operations. "They could divide and conquer without giving up control of the company," he says...