US-based confectioner Hershey, run by the tight knit Hershey family's Hershey Charitable Trust, is planning to take on the Goliath food company Kraft by launching a solo bid of $17 billion for Cadbury PLC, according to reports.
Even as the landscape for the takeover battle of the British maker of Dairy Milk chocolate, Cadbury widened this week with Hershey and Ferrero International SA saying that they were considering a possible offer for Cadbury, (See: Hershey, Ferrero to rival Kraft's bid for Cadbury) the Pennsylvania-based confectioner is being pushed by the charitable trust to make a bid that would better its bigger rival Kraft's f $16.7-billion unsolicited takeover offer.
The Wall Street Journal, citing people familiar with the matter, reported today that the Hershey Charitable Trust, which controls 77 per cent of the company's voting stock and 31 per cent of common stock, is pushing Hershey's chief executive, David West, to make a rival offer to Kraft's $16.5 billion bid made earlier this month for Cadbury, which was rejected by the British maker of Dairy Milk chocolate board. (See: Kraft's low growth business model unappealing: Cadbury)
This week, Hershey and Italian chocolatier Ferrero had said in separate statements that they were reviewing a possible bid, but gave no assurance that they would make an offer for Cadbury.
Both companies were forced to respond after Britain's Panel on Takeovers and Mergers asked them to clarify media reports, which had said that they were considering a joint bid for Cadbury.
Although, West has held talks with Ferrero on two occasions, nothing seems to have materialized since both companies are planning to make solo bids.
The media has also speculated that Ferrero would also launch its own deal and make a solo bid for only parts of Cadbury, which looks like an attempt to thwart Kraft's hostile bid, according to analysts.
Ferrero, may be inclined to acquire Cadbury's gum and candy division, which is worth about $7.4 billion.
Hershey has appointed JP Morgan and Bank of America Merrill Lynch to finance the bid and it is believed that Byron Trott, the ex-Goldman banker, who has close ties to Warren Buffett, is also involved.
The Wall Street Journal said that the Hershed bid could possibly include at least $10 billion in cash, plus $2 billion in new Hershey shares. A third component of this package would be an additional $3 billion to $5 billion in cash from rich investors in exchange for equity in Hershey.
The deal would better Kraft's offer by 25 pence since Hershey's offer would be about 750 pence a share, compared to Kraft's 725 pence a share.
But Hershey's offer would be more attractive to Cadbury shareholders since nearly 85 per cent of the offer could be made in cash, while Kraft has offered 300 pence-a-share in cash and the rest in shares.
But any offer from Hershey's would certainly raise debt burden by billions and put its credit ratings at risk.
In order to maintain full control of Hershey, but at the same time structure a viable deal, the trust may sell $1 billion in assets, said people close to know to the paper.
Hershey, founded in 1894 by Milton Hershey, and now run by the Hershey Charitable Trust, is North America's leading manufacturer of chocolate and non-chocolate confectionary and chocolate-related grocery products. Some of its most well known chocolate brands include Hershey's Kiss, Kit Kat, and Reese's Peanut Butter Cups.
Hershey's main market is North and South America, with a negligible presence outside - out of the $5.13 revenue in 2008, a mere 14 per cent of that revenue comes from outside the US.
It already has had a tie-up with Cadbury since 1980 to market Cadbury's candy in the US market and a take over of Cadbury's chocolate business would open the European and vast emerging markets, where Cadbury's strength lies.
Hershey had $1.5 billion in long-term debt and $119 million in cash as of 4 October 2009.