Tuesday, December 15, 2009

Cadbury misses the point. The boomtimes are OVER (CBY, KFT)

There are numerous holes in Cadbury's argument against a Kraft takeover, but the most ridiculous is their claims that the EBITDA multiple being offered is too low. (I won't even get into them referring to EBITDA as "profits," which is impossible seeing as the metric comes before interest and taxes.) Sure, a higher bid financed by the "dumb money" could come, but Kraft has certainly not tried to buy them on the cheap. From yesterday's argument against a Kraft offer:


11.6 times EBITDA is TOO LOW? They're crazy. One must have slept through the credit crisis to think that debt would be available to facilitate a deal at prices higher than what Kraft has offered. Where Cadbury has a point though, is that they are not excited by the prospect of the offer consisting of Kraft shares:



Among other concerns are that management is under-invested in Cadbury, meaning they'd rather save their job than get let go in a change of control. The CFO for instance, owns no shares and has options that will vest over the next few years. I would expect that they'd vest immediately on a change in control, but it still remains the case that he'd have more upside if the deal is rejected.

As for other conflicts of interest, look at the massive dealings in Cadbury stock that advisor Goldman Sachs has had - while advising Cadbury to seek a higher price!

Copyright 2009 AlphaNinja

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