Tuesday, September 8, 2009

Kraft offer for Cadbury looks rich (KFT)

AlphaNinja - The stock market cheered the news that Kraft (KFT) is interested in purchasing Cadbury for about $17billion. It would create a company with combined revenue of over $50billion, a giant in the industry.

What seems to be lost on Kraft is the importance of paying the right price. They focus on the premium (the amount offered above the previous share closing price) a little too much:

The big winners in this deal will be the investment bankers. A Kraft exec's comments below indicate that they were quite unconcerned with being picky about the price. He's really going regret saying these things.

“The most relevant point about Mars/Wrigley is that they paid a 28 percent premium over the prior day close,” Executive Vice-President Michael Osanloo said in a Regulatory News Service statement. “On the most important comparison point, the premium, our proposal compares favorably. The debate about multiples misses the point.”
Kraft said Osanloo’s comments were made in an interview with Dow Jones.
“Cadbury is worth what someone is willing to pay for it, nothing more,” Osanloo said.

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