IN a gripping twist to the Cadbury saga, Hershey yesterday appeared to be lining up a staggering $10bn (£6.15bn) bank loan.
The US confectioner seems determined to fight against the odds to snap up hostile takeover target Cadbury.
The loan, believed to be from banks including JP Morgan and Bank of America, would give it the capital to offer $17.9bn – beating Kraft’s $17.2bn bid – and could trigger a nail-biting bidding war between the two firms.
Hershey’s enthusiasm for the deal has surprised many analysts, who believed it would struggle to raise enough capital to bid for a company worth twice its market value.
Hershey’s bid is said to include $5bn in new Hershey shares and at least $3bn from private investors and the Hershey trust. The new bid would put a value of something near the 800p mark some analysts thought would sway Cadbury shareholders.
A recent investor survey put the magic number at closer to 850p a share, with some shareholders apparently holding out for as much as 900p a share, although neither firm is expected to go that high.
Kraft has until midnight on Tuesday to change its cash-and-stock offer, which on Friday valued Cadbury at 771p – below its 793.5p market valuation.
The possibility of a Hershey bid has caused anxiety for players on both sides of the deal. Cadbury staff will be troubled by the sheer level of debt the confectioner seems willing to take on – and the subsequent impact this could have on investment in the new firm. And Hershey staff worried the firm is over-stretching. Any bid over 800p would have a detrimental effect on the company’s investment-grade credit rating.
Chief executive David West has long been seen as a doubter, although sources close to the deal suggest he has been sweetened by the promise that he would remain as chief executive in the new structure.
Kraft, with five times the market capitilisation of Hershey, has the muscle to out-bid its rival – but investors, including majority shareholder Warren Buffett, have cautioned against paying over the odds.