Rather than talk about sweetening its 789 pence-per-share offer for Cadbury — say, to the 820-850 pence level analysts think is needed — Kraft is urging shareholders to take a long hard look at Cadbury’s revenue growth targets, margin goals and other metrics measuring management’s effectiveness. That’s a none-too-subtle step away from the argument that the merger would create mounds of value.
It makes sense that Kraft CEO Irene Rosenfeld would not want to make Cadbury look like it’s worth more than she wants to pay. If Kraft is going to convince anyone it shouldn’t raise the bid, regardless of whether a rival rides in from Hershey or elsewhere, it has to appear willing to walk away rather than go back to the bank.
Cisco, which recently bought Tandberg, is widely regarded as having one of the most savvy in-house merger teams among big corporate predators. Though its bid for the videoconferencing company was hostile, the prospect for a higher bid was always out there. So when it came, it was easy for everyone to accept. Cisco CEO John Chambers also took care to talk up the videoconferencing business as core to Cisco’s future.
Kraft investors might be concerned that the company will look ridiculous if it ends up raising its bid, having dug in its heels. But who cares? Either Cadbury is worth more to Kraft’s strategic view of the world of chocolate, in which case the price will have to rise, or it isn’t, and Kraft will be fully justified in walking away. With Cadbury’s share price not having climbed much beyond 800 pence since the bid emerged, the market seems hardly convinced Kraft is far off the mark. But it still may be a stretch to think Cadbury will sell at a discount.