Thursday November 19, 2009

Hershey/Ferrero Rumor Spikes Cadbury Shares

Cleveland — Financial markets are abuzz with speculation about a possible three-way, global confectionery melding of The Hershey Co., Ferrero SpA and Cadbury plc.

Wednesday’s Wall Street Journal claimed Hershey was “plotting” a Cadbury bid “with or without a partner,” and CEO David West “has spoken with Ferrero bankers at least twice in the last two weeks.”

This follows Kraft Foods, Inc.’s formalized $16.7 billion bid for Cadbury, which the London-based confectioner termed “derisory” and rejected on November 9.

While Hershey already owns the license to produce Cadbury chocolate in the U.S., market analysts suggest it stands to gain through Cadbury’s gum brands while Ferrero — well-established in Europe — could also profit from increased global exposure.

Both Hershey and Ferrero said they were reviewing their options.

Still, news of the talks spiked Cadbury shares to their highest level in nearly a month, rising 1.3 percent and trading at about 10 percent higher than Kraft’s offer, which valued Cadbury shares at around $12.

Sources suggest any potential, counter bid from Hershey and Ferrero will depend heavily on financing because European Commission takeover rules require rival bidders secure all necessary financing prior to making an offer.

Cadbury’s strong presence in the emerging markets of India and China is said to be one of the major aspects of its appeal.

“It’s a global consumption story,” says Matt Arnold, analyst at investment firm Edward Jones. He says the burgeoning middle classes in developing countries coupled with exploding, youthful populations make for unprecedented growth potential.

“These businesses are mature in the U.S. and Europe, so the only real opportunities are in emerging economies,” he asserts. “For the first time, you can forget about market share because there is such huge, new market growth up for grabs.”