Hershey bows out of race to win Cadbury

HERSHEY yesterday conceded defeat in the battle to win Cadbury, admitting the recommended bid of 840p per share, plus a 10p dividend, is too high for it to top.

The decision follows a unanimous vote by Hershey’s board of directors late on Wednesday against a competing offer.

The decision by Hershey was widely expected.

“It was always going to be a long shot for Hershey to get all their ducks in a row for a bid, and even if they put one together, they were up against a much larger suitor in Kraft,” said Craig Hutson, a corporate bond analyst for Gimme Credit in Chicago.

The news came, as it emerged yesterday that Kraft will be restricted from heavily tapping debt markets to fund its takeover of Cadbury because its credit rating could drop to junk status.

The Illinois-based maker of Oreo cookies and Toblerone will raise a maximum of $3bn (£1.9bn) through bond issues to fund its purchase of the 186-year-old British company, according to estimates. Analysts said Kraft was “on the borderline” of junk status after Fitch downgraded its default rating to BBB- and Moody’s and Standard & Poor’s put it under review.

The news underscores investor Warren Buffett’s fears that Kraft’s fundraising will disadvantage equityholders rather than debtholders. “I think this deal was a mistake,” Buffett said on Wednesday, referring to the possible issuance of more shares at around $28.80 – a level he sees as undervalued.

However, Kraft bonds continued a confident run yesterday, with 2039 notes trading near a three-month high of 108.8 cents to the dollar.

Analysts said the fears over Kraft’s credit rating were overblown.