Below is a chart from Bloomberg showing how the credit default swap market has reacted to Kraft’s proposed $16bn cash and stock offer for Cadburys.
The sharp jump in Kraft’s 5-year CDS spread is the normal reaction to news that an already-indebted company plans to load up its balance sheet with more debt (in spite of the company’s commitment to keeping its BBB investment grade credit rating).
News that shareholders are putting pressure on Kraft to table a knock-out offer is likely to push the US company’s CDS spreads wider.
The more interesting feature of this price action however is that 5-year Hershey CDS moved more violently wider than Nestle, even though Nestle has been seen as the most viable alternative bidder to Kraft.
As far as the CDS market is concerned, Hershey is more likely to waddle into the mix than Nestle.
Related links:
Cadbury wispas – FT Alphaville
Kradbury: more hot chocolate – FT Alphaville