So far, Kraft's (KFT) bid to acquire Cadbury (CBY) hasn't made much progress. The U.K. food company has rejected the American company's offer, Cadbury's large institutional investors are supporting management and there are rumors that several other companies in the sector, including Hershey (HSY), are preparing bids of their own. The current Kraft bid is 10 billion pounds, or roughly $16 billion. Cadbury is trading above that, an indication that investors expect Kraft to lift its offer or that another suitor will offer to pay more.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%% It now appears that those investors' expectations are correct. On Sunday, The Times of London reported that Kraft will raise the value of its Cadbury offer within a matter of days. The Times says that, under U.K. law, "Kraft has to make a move by January 19, after that date it can make a higher offer only if a rival takeover bid is made by another suitor."
The value of the offer isn't the only reason that Kraft's bid hasn't made more headway. Kraft's financial results recently have been lackluster, and Wall Street does not expect them to improve much, based on analyst estimates for the last quarter of 2009 and the current year.
The turnaround effort at Kraft that Irene Rosenfeld initiated after she became CEO has largely failed. This leaves investors with the impression that Kraft is "buying growth" with its Cadbury bid. And that's something that doesn't sit well with most Cadbury shareholders -- unless, of course, the price is right.
Basics of Diversification
Learn one of the fundamental concepts of building a portfolio.View Course »