Kraft Makes Hostile Bid for Cadbury

The big news over the weekend is that the House passed a healthcare bill by a vote of 220 to 215. Now the bill goes off to the Senate and the bar is much higher. Senator Lindsey Graham said that the House bill was “dead on arrival.” It’s very likely that the Senate won’t take up healthcare until next year.

The big news this morning is that Merger Mania continues to flare up. Kraft Foods (KFT) is now making a hostile bid for Cadbury (CBY). In September, Kraft proposed an offer of 300 pence in cash and 0.2589 new Kraft share per Cadbury share. This was a 42% premium to Cadbury’s share price, but the company turned the offer down. At the time, I wrote:

If most people were offered a 42% premium on something–anything–they’d take it, so I have to credit Cadbury’s board for showing some moxie. At least they believe in their company.

Apparently, they’re not alone. Shares of Cadbury have surged on the news that someone else will make a bid for them. This is typical Wall Street–if one company is an interested buyer, then they all must be.

No other bidders have emerged. As a result, Kraft is sticking with its original bid whether Kraft likes it or not. The problem is that shares of Kraft are down since the original offer, and since the deal is part cash, the overall price tag is lower as well.

I currently rate Cadbury a Buy and Kraft a Sell. I recently highlighted some of my favorite stocks for Halloween and this is what I had to say about Cadbury.

I see the situation as a win-win for Cadbury. If Kraft comes back with a higher price, the shares will rally. If not, then CBY is still a strong company, and investors will know that the board is out for shareholders best interest.

That same advice holds true today.

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